Star economists give ideal macro blueprint for India | Latest News India - Hindustan Times

Star economists give ideal macro blueprint for India

Hindustan Times | By
Dec 14, 2018 11:33 PM IST

The document prepared by former RBI governor Raghuram Rajan and the 12 other economists, “An Economic Strategy for India” was released in New Delhi on 14 December .

A low fiscal and current account deficit, income support (and no loan waivers) for farmers, an alternative to the Right to Education law which hasn’t improved education outcomes, a focus on creating more semi-skilled jobs, and jobs for women and young people, and a separate environment regulator — that’s the ideal economic strategy for India, according to a group of superstar economists including former Reserve Bank of India governor Raghuram Rajan.

India’s former Reserve Bank of India (RBI) governor Raghuram Rajan, gestures during an interview with Reuters in New Delhi on September 7.(REUTERS)
India’s former Reserve Bank of India (RBI) governor Raghuram Rajan, gestures during an interview with Reuters in New Delhi on September 7.(REUTERS)

The document prepared by Rajan and the 12 other economists, “An Economic Strategy for India” was released in New Delhi on 14 December . The document was prepared on a consensus based approach on sector specific notes by Rajan, Abhjit Banerjee from MIT, Pranjul Bhandari, the chief India economist at HSBC, Sajjid Chinoy, the India economist at JP Morgan, Maitreesh Ghatak of the London School of Economics, Gita Gopinath, the chief economist at IMF, Amartya Lahiri of the University of British Columbia, Neelkanth Mishra of Credit Suisse, Prachi Mishra the chief India economist of Goldman Sachs, Karthik Muralidharan of the University of California, San Diego, Rohini Pande of the Kennedy School of Government, Eswar Prasad of Cornell and E Somanathan of the Indian Statistical Institute.

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Not surprisingly, the primary emphasis of the document is on big issues: macro-economic stability, agriculture, jobs, and health, education, and the environment. The document comes at a time when India faces a significant agrarian crisis, one with social, economic, even political repercussions, and hasn’t been able to create enough jobs for its millions of young people who enter the workforce every year. Prevailing estimates suggest that India needs to create 10-12 million new jobs every year. It is creating a fraction of that at the moment. Rajan said that although India is growing at 7%-plus , it is not creating enough jobs. Explaining his opposition to farm-loan waivers, Rajan added: “I have said forever, even written a letter to the Election Commissioner saying they (farm loan waivers) should be taken off the table.

I mean, certainly there is reason to think about farm distress. But, the question of whether the flows to farmers is best affected by waiving loans, after all, there is only a subset of farmers who get those loans.” The authors of the document are people from the world of academia, policy making and industry. Describing themselves as non-partisan, the authors have expressed hope that the document will “help spur debate as India moves to elections”. Here are some key points made in the document.

Macroeconomic framework

The authors have underlined the importance of macroeconomic stability — low and stable inflation, fiscal consolidation and sustainable current account deficit – as key to maintaining high growth for the Indian economy. They expressed concern that the combined fiscal deficit of centre and states have remained above 6.5% despite a steady improvement in the central deficit. A “grand bargain” where the centre gives incentives to the state which keep their fiscal deficit under control could solve this problem. The Finance Commission route could be used to institutionalise such awards, the authors suggest.


Noting that policies to control food inflation have played a part in worsening terms of trade for farmers, the document calls for evaluating the impact of inflation on farmers. The authors have argued that income support rather than farm loan waivers and Minimum Support Prices are a better way to ease the distress in farm sector. The authors have also called for strengthening of rural employment guarantee programme to support landless labourers.

Social sector

The document discusses issues in the health and education sector and India’s job market in detail. It calls for repealing the input-based framework of Right to Education, which has not improved learning outcomes and shifting to an outcome based approach. It gives some concrete suggestions on this count. Schools should be given greater flexibility in hiring tutors without formal teaching credentials to supplement teaching. At least part of the centre’s education funding for states conditional on adherence to NITI Aayog’s School Education Qaulity Index. Inability to rein in unqualified medical practitioners, which provide incorrect treatment in more than 70% of the cases, is cited as a key concern. The authors recommend that the state should train private health care practitioners. The authors have advocated reducing the number of welfare schemes and focusing on selected key programmes which are indexed to factor in the impact of inflation. Promoting a choice based approach instead of the cash versus kind binary is a better idea, the document says.


The authors list three key challenges on the employment front: large scale creation for semi-skilled jobs, increase labour participation of women and spreading employment and income growth beyond India’s coastal areas. Lack of secured and remunerative jobs in the private sector is forcing job-seekers to waste years in preparing for government jobs, which are both scarce and expensive to provide. The authors suggest that labour reforms should be aimed to provide incentives to firms to train on-job workers to address the skill shortage. The report also suggests that the government should subsidise expenses on child care and maternity leave expenses for private firms as legislations to mandate these payments could lead to a reduction in hiring of women workers.


The authors have argued for setting up of an independent regulator, who can be removed only by impeachment, to streamline environmental policy in the country. It also argues for subsidising power consumption for low-income households to prevent pollution from cooking and heating fires. To address India’s problems, the country needs to grow at more than 7%, Rajan said. “Whatever the growth numbers are,” he added, referring to the controversy over India’s GDP data, “they are not enough”.

PTI contributed to this story
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