By Sanjaya Baru

Tucked away in the prime minister’s impressively long speech at the ET Global Business Summit last Friday was a delicious dig at economists. Contrary to an economist’s assumption that ‘rational man’, homo economicus, does not give up an entitlement, 6.5 million Indians have given up their cooking gas subsidy in response to the government’s political campaign aimed at a social being’s altruism, Prime Minister Narendra Modi reminded his audience.

Compared to all other professionals, economists have had an exaggerated role in public policymaking in India. Through all the ups and downs of India’s economic performance, the reputation of its economists has not been dented. It is the neta and the babu who have had to carry the can for failed policy. Yet, economists wax eloquent as if they have seen the future and returned to guide lesser mortals forward.

Nothing but such professional hubris explains the certainty with which the RBI governor has declared that any deviation from the set path of fiscal consolidation would turn India into a Brazil. While there is a good case for a ‘long term fiscal policy’ — and India has defined one from time to time over the past several decades — the fact is that successive governments have deviated from fiscal paths set in cement with very different consequences.

What a 0.3-percentage-point slippage in the fiscal rectification path would mean in 2016 could be very different from what it meant on an earlier occasion. It is not the absolute extent of slippage from a predefined fiscal deficit number that ought to worry policymakers, as much as the purpose for which such a slippage is being allowed.

If the additional resource gathered by the government is used to step up investment, create new jobs and improve the productivity of deployed capital, it is a risk worth taking. What this means is that while indicating such a slippage in the fiscal deficit target for 2016-17, the Union Budget must set out a clear agenda of economic liberalisation and a step-up in public investment in infrastructure.

New, Improved Make in India A fortnight before Budget 2016 presentation, the prime minister is slated to unveil what the government claims is ‘Make in India 2.0’. The fact is that business and enterprise have not yet felt the impact of ‘Make in India 1.0’. Hence, credibility of policymaking and implementation of policy is key to the sustainability of an easier fiscal policy.

While politicians in power should listen to professional opinion and weigh the pros and cons of a policy recommendation, it is useful to remember that fiscal policy requires political judgement and its implementation entails political management. If economists had all the answers, we would not have so many poorly performing economies in countries with the best-trained economists.

Consider the fact that while the best performing post-World War 2 economies have been Germany, Japan, China and South Korea, no economist from any of these countries (bar one German in 1994) has ever been awarded the Nobel Prize.

Clearly, there is no reason to imagine that imported economists stand on surer ground when it comes to macroeconomic policy than homespun ones. And merely because an economist has been correct on one policy issue does not mean that he would be so on all.

Prime Minister Narendra Modi and finance minister Arun Jaitley would do well to remember that after the trans-Atlantic financial crisis of 2008-09 and the European economic crisis, the economics profession has come under insistent attack from politicians, the media and the general public. Even in China, politicians are reasserting their supremacy over macroeconomic policy.

Even a conservative journal like The Economist poked fun at economics in its January 23 edition for its pretence to be a science, “Whereas their peers in the natural sciences can edit genes and spot new planets, economists cannot reliably predict, let alone prevent, recessions or other economic events.”

If economics is ideology-laden, fiscal policy is doubly so. Thus, the decision on what fiscal deficit number can be sustained this year will have to be taken based on the government’s assessment of how much reform it can push through and how much productive investment it can help foster. That is how such decisions were taken in the past. Once a number has been arrived at, the government would have to sell it to the market and the world and seal its credibility.

Blind Leading the Blind Many commentators on economic policy imagine that international financial institutions and western credit rating agencies are clairvoyant, have sophisticated econometric models to work their numbers through, and possess a GPS guiding them down every economy’s path of fiscal rectitude, and so, are entitled to the last word on what is a credible number. Nonsense.

It is up to national policymakers to convince such analysts of the credibility of their decision-making process and the sustainability of their policy choices. Everyone is entitled to their opinion on fiscal policy. But the last word has to be that of the political leadership.

The writer is honorary senior fellow, Centre for Policy Research, New Delhi