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'India has to catch a train that left 25 years ago'

May 02, 2017 12:37 IST

'In contrast to the generally buoyant tone of the Economic Survey in January, he sounds uncharacteristically pessimistic, saying that forces in the world economy -- slowing global trade, protectionism, robots -- will limit India's manufacturing to levels well below what propelled East Asia's economies decades ago.'
Rahul Jacob has lunch with Arvind Subramanian, chief economic advisor to the Modi government.
Illustration: Dominic Xavier/

Illustration: Dominic Xavier

One of the nine youngsters at lunch who are part of Chief Economic Advisor Arvind Subramanian's team is speaking about the previous day's Supreme Court judgment disallowing two private power companies from passing on cost escalations that are the result of a change in regulations overseas or foreign fuel price hikes when the phone rings.

Subramanian lets out a whoop of delight. The call turns out to be an approval of funds in a matter of weeks -- a nanosecond by the standards of Lutyens' Delhi -- that Subramanian had pleaded for to restore the sculptures of the influential Bengali artist Ramkinkar Baij after a visit to Santiniketan.

"God knows how much influence I've had on economics, but I will take this one," Subramanian says.

Subramanian is joking of course, but to me this seems a telling 'economists may propose, but politicians and judges dispose' moment.

The day's newspapers include the food and consumer affairs minister's comment that the government will soon mandate that restaurants specify portion sizes on their menu to curb the wastage of food.

A hotelier I meet the next morning is depressed by the impractical proposal, coming as it does on the heels of the Supreme Court ruling banning the sale of alcohol from shops near highways that overzealous state excise officials have inevitably extended to ensnare hotels and restaurants.

The recent passing of the Finance Bill appears to have ushered in a tax inspectors' raj with little recourse to appeal.

For business people who applauded this government's initial focus on making India an easier place to do business, these are bewildering times.

Later, on the day of our lunch, the government released data showing the volatile industrial production index shrunk 1.2 per cent in February as businesses struggled to shake off the effects of demonetisation in November.

Against this backdrop, lunch with Subramanian and the nine youngsters mostly in their twenties, who hail variously from the Indian Economic Service and institutions such as Columbia, Johns Hopkins and the Delhi School of Economics, is an exuberant affair.

I arrive early and have a few minutes alone with Subramanian, who is unfailingly courteous. Our conversation starts with tennis -- as it always does. He confesses that he watched the fifth set of the Federer-Nadal Australian final for the fourth time the night before.

He then hedges his bet that Federer will win the Grand Slam this year. He seemed more certain when we met recently in Hong Kong at a Credit Suisse conference where he was a keynote speaker. "Part prediction, part unrealistic hope," he qualifies.

When nine of his team come in, I realise I have my work cut out.

The rapid-fire conversation ranges from lateral entry into the civil service and the need for longer sabbaticals from the service to help them hone their skills to discussing the prolific blogger and economist Tyler Cowen; from the big data use of night lights as a barometer of economic development to comic lines from W H Auden's poetry.

The youngsters are so bright I turn briefly optimistic about India's demographic dividend. The Subramanian lingua franca is a pell-mell rush of literary references and elaborations and explanations of economic ideas and I struggle to keep up.

I close by asking whether Subramanian will stay on as CEA and whether his book, Eclipse: Living in the Shadow of China's Economic Dominance was premature in its predictions,/strong> about the renminbi's status as a reserve currency for the world, displacing the dollar.

The banter among the group starts with the arrival of idlis and vadas and chole kulcha from a nearby dhaba. The lunches were almost a daily affair for a couple of years among 'Team CEA,' but have become quite irregular, says Subramanian.

"Because you get hungry earlier," interjects the youngest of the group, Gayathri Ganesh, who studied at Columbia University, pointing out that Subramanian often has lunch at 11 am.

Subramanian, a vegetarian, eats an abstemious home-made salad of tomatoes and feta cheese on the day I visit. I eat an idli and a vada.

Instead, the team continues to congregate weekly at Subramanian's request to discuss The Economist magazine's wide-ranging finance and economics section, with diversions to discuss Cowen's latest blog.

"A rewarding part of this job has been establishing mentoring relationships with the young," Subramanian says.

They in turn warmly credit him with an open-door policy, and encouraging them to speak up when they disagree while advising those from outside the civil service to be especially mindful of getting on with members of the civil service.

The camaraderie within the team is apparent, but Zubair Naqvi, one of the economic service officers, says the group still faces challenges building bridges to other departments within the government.

Suthirtha Roy, an articulate veteran of the team who worked on the research on India's misdirected kerosene subsidy, has joined us at lunch even though he now works at the India office of the World Bank.

There is much laughter when Subramanian tells a story of asking Bihar Chief Minister Nitish Kumar and his officials to guess how many separate slabs of tariffs were administered by the state electricity board for different industries.

The chief minister thought eight to 10; there turned out to be more than 70.

Navneeraj Sharma, the resident power expert, rushes to a previous Economic Survey to read out that those rearing rabbits have a different tariff from those rearing poultry and those growing mushrooms.

The conversation segues from a funny line from Auden's poetry to a meeting with Barack Obama when Subramanian was part of a team that made presentations to the president in Washington, DC in 2010 before his trip to India.

In his grasp of foreign policy and trade issues, Obama "was masterful.

The youngsters troop out, giving me the chance to ask whether he is likely to stay on as CEA or return to the Peterson Institute for International Economics in Washington when his term as chief economic advisor is scheduled to end later this year.

A recent newspaper report suggested he had received an extension. "I'm enjoying my job and as long as I feel I'm contributing I'll stay," he replies.

Each of his economic surveys has been written with the flair of a skilful journalist and shone a spotlight on issues such as subsidies for the well-off and the twin balance sheet problem.

He speaks with warmth about working with Finance Minister Arun Jaitley. Still, the tumultuous past six months bookended by demonetisation -- there is speculation that Subramanian was not consulted -- and the recent farm loan waiver that suggests improving governance at State-owned banks is doublespeak make me unsure of what to make of his response.

It comes weeks after what I read as a more conditional reply to this question of whether he would stay to the Financial Times. Subramanian then embarks on a soliloquy about continually re-examining one's effectiveness and goals.

Roy is waiting for a quick chat so I end by asking about an International Monetary Fund paper he wrote with Dani Rodrik about the disproportionate beneficial impact a limited shift in government attitudes in the 1980s had on Indian manufacturing.

Why is manufacturing productivity stuck, I ask.

In contrast to the generally buoyant tone of the Economic Survey in January, he sounds uncharacteristically pessimistic, saying that exogenous forces in the world economy -- slowing global trade, protectionism, robots -- will limit India's manufacturing to levels well below what propelled East Asia's economies decades ago.

To me, he sounds closer to Rodrik's premature de-industrialisation argument than I expected. But then he wagers there are still opportunities in garments and textiles as China's wages have risen sharply.

"The challenge for India is to catch a train that left 20, 25 years ago," he says.

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Rahul Jacob
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