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Raghuram Rajan brings together 13 top economists of Indian origin to draft economic reform agenda for India
Chicago University Professor and former RBI governor Raghuram Rajan has brought together 13 top economists of Indian origin to draft an economic reform agenda for India for the next few years. And New Delhi's elite economist-bureaucratic community has been quick to name them Rajan's 13. The Agenda was submitted on 14 December.

Besides Rajan, the other economists who have penned the five-year economic agenda for India across a host of issues, including the macroeconomy, health, education, banking reforms and infrastructure, are Abhijit Banerjee, Gita Gopinath, Neelkanth Mishra, Karthik Muralidharan, Eswar Prasad, Sajjid Chinoy, Amartya Lahiri, Rohini Pande, E. Somanathan, Pranjul Bhandari, Prachi Mishra and Maitreesh Ghatak.

The group of economists flagged jobless growth and the need to preserve macroeconomic stability and not trade it off for higher growth. They advocated low and stable inflation, a consolidated fiscal deficit of less than 5 per cent that leaves enough space for private investment and a sustainable current account deficit that can be financed by capital flows to maintain macro-economic stability.

The details of the recommendations are not in public domain. But on the basis of the newspaper report, the following observations can be made.

Now, before calling the current economic growth in India a jobless growth, we must consider the following: Latest payroll data released by the Employees' Provident Fund Organisation (EPFO) suggests that 'job creation' in the country more than doubled to 9.73 lakh in September, 18 compared to 4.11 lakh in the same month last year. This is the highest monthly addition since September 2017, when the government started releasing EPFO data. From September 2017 to September 2018, around 79.48 lakh new subscribers were added to social security schemes of the EPFO. However, as Soumya Kanti Ghosh and Pulak Ghosh said at the beginning of the year, we need better payroll data to estimate properly the employment generation or job creation figure at a point of time. Before that, we can't conclude either way.

The Group notes that India relies on overseas money to fund investment and is vulnerable to a sudden reversal in sentiment. A widening current-account deficit is seen as a key risk for the economy and one of the main reasons why India became a target in a global sell-off of emerging markets this year. The rupee has lost nearly 11 percent against the dollar this year, making it Asia's worst-performing major currency.

In India, fiscal consolidation or the fiscal roadmap for the centre is expressed in terms of the budgetary targets to be realized in successive budgets. The Fiscal Responsibility and Budget Management (FRBM) Act gives the targets for fiscal consolidation in India. According to FRBM, the government should eliminate revenue deficit and reduce fiscal deficit to 3% (medium term) of the GDP. Amendment to the FRBM in 2015 makes a rolling target and envisaged to realize the 3% Fiscal Deficit target by 2018. But the 2017-18 budget has extended the time line for the achievement of the target by one more year i e., to 2018-19. 

Agencies have, over the last year, repeatedly flagged their concerns over India's high general government debt, saying it is unsustainable at the current level of 70% of GDP. Fiscal deficits can generally be bridged only through borrowings. So, when the fiscal deficits of states rise, they have to step up their borrowings. India's general government debt, which stood at a staggeringly high level of 69.9% of GDP in 2016-17, is a sensitive point for international credit rating agencies. The government has targeted to bring it down to 64.9% by 2020-21, a plan that has gotten a stamp of approval from the IMF.

And, one major achievement of this govt. has been that inflation has been under control.

Macroeconomic stability exists when key economic relationships are in balance—for example, between domestic demand and output, the balance of payments, fiscal revenues and expenditure, and savings and investment. These relationships, however, need not necessarily be in exact balance. Imbalances such as fiscal and current account deficits or surpluses are perfectly compatible with economic stability provided that they can be financed in a sustainable manner.

Broadly speaking, two considerations underlie macroeconomic policy recommendations. First, there needs to be an assessment of the appropriate policy stance to adopt in a given set of circumstances (i.e., should fiscal and/or monetary policy be tightened or loosened?). Second, there is the choice of specific macroeconomic policy instruments that would be beneficial for a country to adopt (e.g., the use of a nominal anchor, a value-added tax (VAT), etc.). There is apparently no assessment of policy stance made or any specific choice of instrument suggested by the group.

The economists also favoured doing away with government mandates for state-run banks for lending to specific sectors as well as a more independent board-led process for appointment of chiefs of these banks.

The importance of NBFC, Agriculture and SME sectors just cannot be wished away and depending on the situation prevailing, some special consideration for them may be necessary. Further, concepts like 'more independent board' and 'board led appointment of chiefs' need to be elaborated to be defined and understood clearly before suggesting any major overhauling.

They also advocate long-pending land and labour reforms, including allowing multi-year fixed-term labour contracts, greater decentralisation of power to states and local bodies, and overhauling the Right to Education Act to ensure better learning outcomes.

These oft repeated long pending issues have seen some progress in areas of labour reform and federalism but, of course, lot more remain to be done.

The writer is a long-standing commentator on contemporary issues

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