I heard a story about a minor impact of the coronavirus threat on India’s trade, which illustrates a major obstacle to the growth of the Indian economy. A garment exporter told me that the government has banned the export of masks for fear that the virus will spread in India. The exporter has a consignment of eye masks awaiting shipment, but try as hard as he would, he could not persuade the customs that eye masks are fashion garments, which don’t cover either the nose or the mouth, and have nothing to do with preventing the spread of the coronavirus. Mask means mask, according to the customs, and that’s the end of the matter. This year’s Economic Survey has warned of “the urgent need to remove red tape at ports to promote exports”. The need is indeed urgent. At present, the value of Bangladesh’s garment exports is nearly double the value of Indian garment exports, but the customs don’t seem aware of this need.
Ever since he came to power, Prime Minister (PM) Narendra Modi has been told by economists that the bureaucracy and the plethora of laws and regulations governing trade is an obstacle to growth. But when I told the eye mask story to an economist friend, he said the trouble is that the PM doesn’t listen to economists. There is one obvious reason why this could be true. Most economists thought the slowdown in the economy would have an impact on last year’s general election, but the PM knew better. He barely bothered to mention the economy. It seems he doesn’t buy the phrase coined by Bill Clinton’s campaign manager: It’s the economy stupid. For him, it’s the politics that matters. That is presumably why Amit Shah sat next to the PM in the crucial pre-budget meeting he held with economists, sector experts and successful young entrepreneurs. As home minister, Shah does not have an economic brief, but he is Modi’s closest political advisor. The finance minister, whose brief is the economy, did not attend this meeting, though it was later clarified that she was meeting party functionaries for inputs on the budget.
When he first came to power, the PM did appear to listen to his economic advisors. He chose some of the most highly-reputed economists from America to advise him, but then he didn’t listen to their advice. He fell out with Raghuram Rajan, the governor of the Reserve Bank of India (RBI), over the question of the bank’s autonomy and the Mudra Loans scheme. Urjit Patel, the next governor, resigned rather than agreeing to give the government a bigger share of the RBI’s dividend. So he was replaced by Shaktikanta Das, a career civil servant.
Arvind Panagariya was chosen to head the new Niti Aayog,
but his commitment to free trade clashed with the Bharatiya Janata Party’s
commitment to swadeshi protectionism. When he left, the economist, Rajiv Kumar,
was chosen as his successor. Kumar had written a book arguing in favour of
Modi’s record as chief minister of Gujarat. Bibek Debroy, who moved from the
Niti Aayog to being the chairman of the Economic Advisory Council to the PM,
was a prominent advocate of Modi’s Gujarat model
As it has turned out, it would be good if Modi had
listened to the advice of his choice for his first Chief Economic Advisor,
Arvind Subramanian. Subramanian had recommended a far simpler structure for
GST, with a maximum rate of 18 per cent. His successor Krishnamurthy
Subramanian is one of the economists who has supported demonetisation. So, it
does seem that the PM now chooses his advisers because they have agreed with
him in the past. Isn’t there, therefore, a danger that they will feel obliged
to read his mind before giving advice now, and that rather than being
independent-minded, they will