'Change the people in charge': Ex-CEA Arvind Subramanian's fix for India's economy

Former Chief Economic Adviser Arvind Subramanian has argued that India needs a change in economic leadership to restore investor confidence, saying the country's current challenges come not only from external shocks but also from deeper concerns about growth, governance and the investment climate.

Writing in The Indian Express, the economist said the sharp decline in the rupee and growing economic pressures have raised a fundamental question.

"As the rupee plummets and India confronts serious economic challenges, there is a similar sense of 'who is in charge?' And the answer to that question, which must now be said, is: 'Whoever they are (or not), change them,'" he said.

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Subramanian argued that periods of economic stress require visible and decisive leadership capable of reassuring markets and investors. "The need of the hour is for a credible interlocutor with a clear message, like a Mario Draghi who said 'we will do whatever it takes,'" he said.

According to Subramanian, the rupee's weakness cannot be explained solely by the Iran conflict and higher energy prices. He contended that markets have been signalling concerns about India's medium-term growth prospects for some time.

"The rupee crisis today is only partly related to the Iran war and the consequential shock to energy-dependent India. It reflects as much or more doubts about India's medium-term growth prospects," he wrote.

The economist noted that the rupee had already been among the worst-performing currencies in a group of comparable emerging markets before the war, despite significant intervention by the Reserve Bank of India.

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Subramanian identified weak private corporate investment as the central challenge facing the economy. "This peaked at 17 per cent of GDP in the early 2000s and today is at half that amount," he wrote, adding that a brief post-pandemic recovery in investment had faded.

While acknowledging that the government has undertaken several reforms- including GST simplification, labour-law changes, foreign investment liberalisation, a trade agreement with the European Union and a provisional deal with the United States - he argued that these measures have not been enough to reassure investors.

"The key distinction that hints at a resolution of the paradox - and explains weak private investment - is between actions taken by the government on paper that affect the costs of doing business and the deeper instincts of the government that affect the risks of doing business on the ground," he wrote.

Subramanian listed what he described as problematic governance practices, including favouring certain corporate groups, uneven resource allocation, aggressive use of state institutions, arbitrary tax enforcement and weakening federal decision-making structures.

He argued that addressing these concerns requires more than additional policy announcements. 

"Changing personnel at ministerial, technocratic, and bureaucratic levels is one - perhaps the only - way the government could signal a departure from these instincts and habits," he wrote.

Subramanian also called for the recruitment of officials valued for "quality, independence, and new ideas, not loyalty and cheerleading."

He concluded with a warning that a failure to embrace change could prolong the economy's challenges.

"Sameness of personnel and staleness of ideas are fatal for all political systems," he wrote. "The truth is that this leopard has to change its spots or else the Indian economy will continue paying the price."