Make chiki for export!- Modi cannot do without the counsel of economists

Ashok V. Desai

January 20 , 2015

Atal Bihari Vajpayee was an imaginative politician; but in some respects he was quite conventional. When he met his Prime Minister's Economic Advisory Council in the late 1990s, he gave its members cashew nuts with tea and coffee. He listened to us for a couple of hours, thanked us, and then went back to prime ministering.

Narendra Modi is imaginative and unconventional. I understand he gives people chiki to munch in meetings. I am fond of it, having often partaken of it in the train when I travelled between Bombay and Poona as a child. Chiki is a block, just like chocolate, of peanuts or sesame seeds embedded in gur (unrefined sugar). It is a balanced food containing both calories and proteins; it is a perfect cure for starvation or undernutrition.

I suggested in my Telegraph column of May 14, 2013 that the government should wind up its foodgrain distribution scheme, which entailed carrying 50 million tonnes of wheat and rice from 120 million farmers to half a million ration shops. Instead, it should give cash to poor people without conditions, and simultaneously promote production of chiki by means of a negative excise duty - in effect, a subsidy - so that they could get nutritious food with the cash should they need it. It would be egotistic of me to think that my idea travelled from the middle page of The Telegraph to the Prime Minister's snack planners. But it is a good idea nevertheless.

I would, however, like him to consider the second part of my proposal, namely the subsidized production of chiki. He should ask Arun Jaitley to impose a negative excise duty on chiki in his next budget. Initially, Gujaratis and Marathas might make fat profits out of it. Before long, however, Haldiram, Manchha Ram and Ramdev will join the party. Competition and mass production will bring down the prices to rock bottom, and the poor will be able to feed themselves without ceding billions to gram pradhans and shopkeepers in bribes. Chiki will have been Made In India. At that point, ITC and Hindustan Lever will wrap it in colourful packages, and it will be ready for export.

But Narendra Modi had a somewhat different idea: he wanted foreign producers to come and produce manufactures in India, and thereby employ our young people. To my mind, it makes no difference whether the producer is foreign or Indian - a job is a job and a product is a product whoever manufactures it. That is as much an argument against privileging Indians as foreigners: it is an argument for dismantling the vexatious controls imposed by the Department of Industrial Policy and Promotion, the department that the Prime Minister has put in charge of the Make in India campaign. This department is the last remnant of licence raj, most of which was dismantled in 1991. It was supposed to put up on its website lists of technical collaborations, industrial licences and applications for NRI investments in the previous month; all the lists are blank. That may mean that no one applied, or that no application was approved, or that all applications are pending before the Foreign Investment Promotion Board or Secretariat for Industrial Approval, or that the DIPP is inefficient. When Narasimha Rao abolished import licensing in 1991, he had set up the FIPB to administer the remaining restrictions efficiently. He had put Amarnath Verma, his principal secretary, in the chair; Verma used to hold meetings of both bodies once a fortnight, and clear everything on the agenda. The machinery then set up is in an advanced state of dystrophy; if it continues in this state, the Prime Minister might as well bid goodbye to foreign direct investment.

The Department of Industrial Policy and Promotion can only sabotage foreign investment; it can do no harm to investment by Indians in India. But even they invest little. Growth of manufacturing output has been close to zero in recent months; industrial investment is also negligible. Till six months ago, this could be blamed on the UPA government. Industrialists did so, and funded the Bharatiya Janata Party generously. But the economic environment has hardly improved; if it continues to be bad for another six months, the industry-BJP honeymoon will also turn sour. The Prime Minister's solution - asking foreign businesses to come to India - will not solve the problem.

If he wants a serious answer, Raghuram Rajan gave one in his Bharat Ram memorial lecture. It is well thought-out. Rajan is in the wrong job. He should be finance minister; Jaitley might do a better job in external affairs. And for commerce and industry, the Prime Minister simply does not have a minister in his party; it calls for abolition or a radical reconstruction - what we used to call reforms two decades ago.

But that would not be enough: the finance ministry determines taxation, government expenditure and borrowing, but India needs something more. It is facing a cyclical downturn. It has experienced the most spectacular boom in its post-Independence history; for the first time, it came close in 2006-10 to growth rates characteristic of China. India today is significantly richer; it has changed people's lives, and will change their behaviour. For instance, there are severe labour shortages in low-pay occupations and fast-growing states, which are leading to precisely the kinds of adaptation - mechanization and changes in relative prices - as have occurred in industrial countries over the past two centuries. Now, India is in the decline phase of a classic trade cycle; it needs a stabilization policy. Till recently, the task of working out the policy would have fallen to the planning commission. But the Prime Minister has replaced the planning commission with the National Institution for Transforming India or the Niti Aayog.

Economists do have ideologies, but are generally not party creatures. No respectable economist has Hindu nationalist inclinations: the ideology is mistaken according to economics. So it was no wonder that Jaitley made the first budget in India's history without a chief economic advisor. Now he has one - a very good one - who organized a conference of economists in the first week of December. It was a good idea, but for the fact that the distinguished economists who had been flown in from abroad had little idea of the problems facing India.

But the planning commission has been emptied, and remains a shell. The Prime Minister has got one big office building close to his office, with no people in it. In my column of September 3, I suggested that he should create a think tank that would connect India's 139 best economists with policymakers through an equal number of research assistants. It did not strike me then, but it would not work, because Modi's ministers are largely incapable of using economists or research assistants. Meanwhile, we have the most desperate economic situation in 60 years, and the present government has to live through it. It is important in these difficult times that it should have the best judgment and counsel available to it. The Prime Minister should revive his predecessor's Economic Advisory Council, appoint any economists he likes to it, and consult it frequently; he cannot do without economics.