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| Abhijit Banerjee |
Even as suggesting a series of measures to push out the Indian economy from the current “great slowdown”, well-known economist Arvind Subramanian has advised the Government of India (GoI) to urgently set up a committee under the leadership of Nobel Prize winner Professor Abhijit Banerjee in order to trigger the process of “generating and disseminating accurate data.”
The advise, which comes in a new Harvard University paper he has authored in collaboration with Josh Felman, a top US consultant, comes almost six months after Subramanian controversially declared that the country’s gross domestic product (GDP) was being significantly overestimated by nearly 2.5%, which had led to a major “reputational damage” across the world.
Suggesting that Prof Banerjee is the right person to “remedy” the damage, Subramanian says that this is particularly important because GoI data have proved problematic, whether it is the real sector, measurement of GDP, employment, or consumption. It insists, the Nobel laureate should be right choice as he “knows and cares deeply about these issues.”
According to Subramanian, who is former chief economic adviser of the Narendra Modi government, this committee could be asked to “propose improvements to data collection and statistical methodology, which could be implemented in conjunction with the planned updating of the base year”, even as identifying “the problems in the GDP estimates and the Periodic Labour Force Surveys (PLFS)/ National Sample Survey Organization (NSSO) surveys.”
Asking GoI to release all the surveys it has sought to hide allegedly because these would expose its “poor” performance, Subramanian underlines, such a committee’s task is surely “difficult”, hence it would “require the assistance of the professional economic community.” However, he underscores, this task can be accomplished only when the unreleased surveys are “published.”
In the section “Better data for policy navigation: A big bang”, Subramanian’s paper says, while solving the economic big slowdown might take a long time to accomplish, “Reliable data is important” because “we have known that confidence -- in the economy and government -- is critical in shaping private actions”, especially in “getting entrepreneurs to invest”, and also in gaining “consumer confidence in getting households to spend on durable goods such as cars.”
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| Arvind Subramanian |
Pointing out that “accurate data is arguably even more important for guiding government actions”, the top economist says this is especially important because the government needs to answer questions that are being raised, such as: Is there really an “employment problem”, has poverty “come down or gone up”, and do poor government revenues “reflect a deep economic downturn” requiring urgent measures to “improve tax administration”?
According to Subramanian, “All these are serious questions confronting policymakers right now. Yet the data are simply not reliable or incontrovertible enough to allow them to be answered with any degree of certainty. And that makes it difficult to formulate policy responses. In some cases, we don’t even know whether a response is needed.”
According to Subramanian, “All these are serious questions confronting policymakers right now. Yet the data are simply not reliable or incontrovertible enough to allow them to be answered with any degree of certainty. And that makes it difficult to formulate policy responses. In some cases, we don’t even know whether a response is needed.”
Asking the government go in for an “immediate task is to re-boot the data systems in three sectors: real, fiscal and financial”, the paper underlines, “On the fiscal accounts, the government should use the next budget as an opportunity to present a revised and cleaned-up set of fiscal accounts”, with the aim “to clean up not just the flow (deficit) numbers but also the stock (debt) numbers.”
“On the financial sector”, says Subramanian, “Given the recent credit bubble and the series of problems, involving so many financial institutions, the time is ripe for a second Asset Quality Review (AQR). A regulatory system that failed to spot, let alone head off, the spate of problems from Nirav Modi to Punjab and Maharashtra Cooperative Bank to Dewan Housing and non-banking financial companies (NBFC) financing of real estate, and above all the behemoth that we have now discovered Infrastructure Lease & Financial Services (ILFS) to be, has to work extra hard to regain trust; and transparency about stressed assets will be an essential pre-requisite for that effort.”
He continues, “A new AQR – perhaps even led by a former Reserve Bank of India (RBI) Governor – will allow the government and RBI to assess the precise magnitude and sectoral nature of the problem, thereby facilitating better-tailored and better-designed policies to solve the problem. It should cover not just the (NBFCs) but also the banks, which are experiencing renewed stress from the real estate, steel, power, and telecom sectors.”
Concludes Subramanian, “Driving a car requires considerable information: a good speedometer, data on whether the fuel tank is empty or full, gauges of tire pressure etc. Running an economy, especially one that is in a predicament such as India’s today, is infinitely more complicated and the data demands are hence commensurately greater. A Data Big Bang effort along the lines proposed here would make that difficult task less challenging.”
“On the financial sector”, says Subramanian, “Given the recent credit bubble and the series of problems, involving so many financial institutions, the time is ripe for a second Asset Quality Review (AQR). A regulatory system that failed to spot, let alone head off, the spate of problems from Nirav Modi to Punjab and Maharashtra Cooperative Bank to Dewan Housing and non-banking financial companies (NBFC) financing of real estate, and above all the behemoth that we have now discovered Infrastructure Lease & Financial Services (ILFS) to be, has to work extra hard to regain trust; and transparency about stressed assets will be an essential pre-requisite for that effort.”
He continues, “A new AQR – perhaps even led by a former Reserve Bank of India (RBI) Governor – will allow the government and RBI to assess the precise magnitude and sectoral nature of the problem, thereby facilitating better-tailored and better-designed policies to solve the problem. It should cover not just the (NBFCs) but also the banks, which are experiencing renewed stress from the real estate, steel, power, and telecom sectors.”
Concludes Subramanian, “Driving a car requires considerable information: a good speedometer, data on whether the fuel tank is empty or full, gauges of tire pressure etc. Running an economy, especially one that is in a predicament such as India’s today, is infinitely more complicated and the data demands are hence commensurately greater. A Data Big Bang effort along the lines proposed here would make that difficult task less challenging.”
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