Why PM Modi has formed the Economic Advisory Council in the fourth year of his tenure

Saurabh Sharma   New Delhi     Last Updated: September 26, 2017  | 15:44 IST
Why PM Modi has formed the Economic Advisory Council in the fourth year of his tenure

Prime Minister Narendra Modi on Monday formed a five-member Economic Advisory Council to assist and advice him on economy related matters, especially to address the recent slowdown in Indian economy. The Prime Minister picked up Niti Aayog member Bibek Debroy to head the council.

Apart from Debroy, the five-member EAC will have NITI Aayog's principal advisor Ratan Watal as its member and economists Surjit Bhalla, Rathin Roy and Ashima Goyal as part-time members.

The decision to set up the EAC has come in the backdrop of slow GDP growth in last few quarters. India's economic growth hit three-year low to 5.7 per cent in the April-June period from 6.1 per cent in the preceding quarter. The recent slowdown in GDP growth has been attributed by some to the government's two economic decisions - Demonetisation and GST.

The Economic Advisory Council will be addressing the issues of macroeconomic importance and present its views to the Prime Minister. It is interesting to see that after three years into the power, Prime Minister Modi has assembled an independent body to assist him on economic matters. But, what has led him to form the Council this long in his tenure?

Here's what led to the Economic Advisory Council's formation

  • UK-based business daily Financial Times on Sunday blamed the Prime Minister's two key economic reforms -Demonetisation and GST- for the latest dip in economic performance. According to Times, poorly implemented demonetization and botched GST roll out have 'put the brakes on an already troubled economy'. The daily further said that the government needs to listen to its own economists. "Modi is by his own admission an economic novice. But he has disbanded his Economic Advisory Council and launched demonetisation on his own whimsical initiative. His predecessor, Manmohan Singh, was an economist and yet relied on the group for advice. There is a lesson there for Mr Modi," Financial Times writes.
  • Not only the slower economic growth but India is also facing a 'severe under-employment' problem. The Niti Aayog earlier this year released a Three-Year Action Agenda for 2017-18 to 2019-20 in which it said: "Indeed, unemployment is the lesser of India's problems. The more serious problem, instead, is severe underemployment. What is needed is the creation of high-productivity, high-wage jobs," the Aayog said. The think-tank referred to top manufacturing countries like China and South Korea and said that the 'Make in India' campaign needs to succeed by manufacturing for global markets. However, recent report showed that India's industrial production grew a meagre 1.2 per cent in July from 4.5 per cent a year ago due to poor show of the manufacturing sector. Labour bureau statistics revealed that the job creation for 2015 was just 1.55 lakh and for 2016 the number stood at 2.31 lakh, way less than the government's commitment of 10 million jobs in 3 years.
  • Senior BJP leader Subramanian Swamy in a letter had warned the government of a major economic depression. "Based on my reading of the various indicators of Indian economy, I feel compelled to inform you that the economy is in its early phase of a tailspin. If curative measures are not taken then a major crash is inevitable between the coming November and February, 2016," Swamy wrote, suggesting six new steps to deal with the situation. Swamy is a BJP man and eminent economist. In an interview, Subramanian Swamy said that the government must bring down the interest rates to 9 per cent. "The rate of interest is an instrument that affects the small and medium industries," he argued. Swamy wants the government to extend the financial support to the small and medium industry, where over 90 per cent of workforce gets the employment. In this light, the formation of the economic advisory council seems to be a step towards course correction.

 

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