Much of what needs to be done for the economy is well-known and it is quite likely that the PMEAC will reiterate those points

So, Prime Minister Narendra Modi has got his three wise men and one wise woman to advise him on managing the economy. The Prime Minister’s Economic Advisory Council (PMEAC) has been revived with Bibek Debroy as chairman and Surjit Bhalla, Rathin Roy and Ashima Goyal as members. Ratan Watal, a career bureaucrat, will be member secretary.

No one can deny that it’s a great team with impeccable credentials, both as economists and as advocates of liberal economics. Along with Rajiv Kumar at NITI Aayog and Arvind Subramaniam and Sanjeev Sanyal in the finance ministry, this is probably the most pro-market economic management team of any government till now. (We’ll ignore, for now, the snide comments that support for liberal economics isn’t compatible with the support for demonetisation that Debroy, Bhalla and Kumar have voiced).

Debroy is pretty much an all-rounder, his work ranging from international trade to legal reforms for economic development. Bhalla isn’t just about obsession with interest rates; he has done a lot of work on poverty and inequality and is a strong votary of growth, rather than redistribution, as a solution to this twin problem. Roy trained as a development economist with significant work on inclusive development but has also developed a strong base in fiscal policy. He was economic advisor to the Thirteenth Finance Commission and, more recently, has been a member of the Seventh Pay Commission and the Fiscal Responsibility and Budget Management Committee headed by N K Singh. Goyal has specialised in finance and monetary economics and has a very sound macro-economic base.

But what will this dream team do? And, if Narendra Modi managed for three years without an economic advisory council, why set up one now?

Though it’s a trifle hard to shush voices which say this is much ado about nothing, that it is just a cosmetic exercise to manage sentiment, the move is getting some guarded welcome.

Pronab Sen of the India Growth Centre, who spent many years in the Planning Commission, says a PMEAC is an important and necessary institution that provides the Prime Minister with an independent perspective on economic management than what he gets from within the government. “It is a valuable sounding board on economic issues,” he says.

Abheek Barua of HDFC Bank agrees that “the Prime Minister can do with these inputs but, at this stage, the critical issues are project implementation and building a set of projects that can absorb funds quickly and get off the ground.” Perhaps this is an independent perspective that the PMEAC can give.

Sen points out that earlier prime ministers had an economic adviser to the Prime Minister (Sukhamoy Chakravarty, Arjun Sengupta and Montek Singh Ahluwalia, for example, were advisers to Indira Gandhi and Rajiv Gandhi), but this institution fell by the wayside after that.

It was Atal Behari Vajpayee who introduced the institution of a PMEAC, setting up a 10-member one in August 1998, a few months after his government took charge. His PMEAC was far more ideologically diverse – liberals like I G Patel and Ashok Desai rubbed shoulders with the socialist-inclined P N Dhar and Arjun Sengupta. Manmohan Singh too set up a PMEAC headed by Suresh Tendulkar in the very first year of UPA-1 and did the same soon after UPA-2 took charge; this time C Rangarajan headed it.

Is Modi’s announcement a belated recognition of the fact that his government has lost the plot on economic policy and that he needs good advice? Growth is flagging, there are no jobs and industry is just not investing, and once again it is caught in the dilemma of whether to go for fiscal consolidation or expansion.

So, what kind of advice is likely to emerge from this PMEAC?

Debroy will set the overall tone, which will be a nuanced one, but Bhalla, who has been quite vocal on the falling investment rate, will keep on at the need to reduce interest rates. Goyal, too, will argue on the same lines, though less bombastically. She has been pointing out that a decade-long slowdown in investment is not cyclical, that firms are not borrowing because there is no demand and that monetary policy should address this problem. Debroy and Bhalla could also suggest ways to deliver welfare more efficiently. Roy will be weighing in on the fiscal front. He is quite unapologetic about being a fiscal conservative and his voice may be in dissonance with other voices in the government arguing for a bit of fiscal expansion to address the current slowdown.

Will Reserve Bank governor Urjit Patel and the monetary policy committee play ball on interest rates just because Bhalla and Goyal now have official heft? Besides, the dynamics between the PMEAC, the finance ministry and the NITI Aayog will be interesting to watch.

The earlier PMEACs did not undercut the Planning Commission because the latter had a clearly defined role, even if it had evolved by convention. That is not the case with the NITI Aayog. As this writer had pointed out in this article , two and a half years after it was set up, there is little clarity about what the Aayog is all about. That was to be a key challenge for Kumar but now he has a new institution as a potential challenger to deal with. What’s more, the Aayog loses two key members – Debroy and Watal – to the PMEAC. Right now, the Aayog’s credibility as an institution depends entirely on the Prime Minister and seasoned government watchers say the setting up of the PMEAC will be seen within the government system as a downgrading of the Aayog.

There will be little sense in Modi setting up a PMEAC if he is not going to listen to it. The earlier PMEACs are generally seen as being largely ineffective (though their members were no less illustrious).

During the UPA years, the PMEAC was best remembered for regularly putting out reviews of the economy. Rangarajan was involved with a number of policy issues – relating to industry, petroleum sector, poverty estimation – and he also mediated in the usual battles between the Planning Commission and finance ministry. But all this may have had more to do with his long and close association with Manmohan Singh.

Debroy has the Prime Minister’s trust, but the equation is nowhere close to the Rangarajan-Singh one. Let’s not forget, however, that during the UPA years, the PMO had to defer to the National Advisory Council on many issues, ignoring the sane advice of the PMEAC. There is no such challenge in the case of the Narendra Modi PMO, so that is one advantage the current PMEAC will have. But will the PMEAC’s advice overpower the populist urge in all politicians, especially with elections just two years away?

In 2001, consulting firm McKinsey drew up a 13-point reforms blueprint; needless to say many of them were political hot potatoes. Vajpayee got his cabinet as well as the Reserve Bank governor, Bimal Jalan, to sit through the presentation. The story goes that, at the end of the presentation Vajpayee said, ye sab to theek hai, par karega kaun (all this is fine, but who will do it)?

Much of what needs to be done for the economy is well-known and it is quite likely that the PMEAC will reiterate those points. It will be a pity if the stellar PMEAC that Modi has set up has to hear similar words from the current Prime Minister.