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The All-Star Advisers Helping India’s States Manoeuvre The Covid-19 Crisis

States have set up their own economic advisory committees to help them deal with the fallout of the Covid crisis.

A cut out of an Indian map and a mural depicting workers stands outside a blast furnace unit at the Steel Authority of India Ltd. (SAIL) Rourkela Steel Plant (RSP) in Rourkela district, Odisha, India, on Friday, June 21, 2019.  Photographer: Dhiraj Singh/Bloomberg
A cut out of an Indian map and a mural depicting workers stands outside a blast furnace unit at the Steel Authority of India Ltd. (SAIL) Rourkela Steel Plant (RSP) in Rourkela district, Odisha, India, on Friday, June 21, 2019. Photographer: Dhiraj Singh/Bloomberg

India’s central government has always drawn top economic talent for advice. From the erstwhile Planning Commission to the Prime Ministers Economic Advisory Council and all-star chief economic advisers.

States meanwhile, barring a few, have mostly relied on advice and policies driven by insiders. Until now.

Faced with the spread of Covid-19, which has forced a 40-day nationwide shutdown, 28 states and union territories have announced packages to the address economic distress emerging from the pandemic, according to data collated by the Centre for Sustainable Employment by the Azim Premji University.

They are now going a step further and appointing advisers to help them with economic strategy over the course of a year, which could see the Indian economy contracting for the first time in 40 years.

At least five states have recently appointed advisory committees. These include Maharashtra, Punjab, Rajasthan, Uttarakhand and West Bengal.

Maharashtra has set up a committee headed by technocrat Raghunath Mashelkar, which includes Vijay Kelkar, Deepak Parekh and economist Ajit Ranade. Rajasthan’s task force is headed by former finance secretary Arvind Mayaram and includes Rathin Roy, director at the National Institute of Public Finance and Policy.

Punjab has roped in former Planning Commission chief Montek Singh Ahluwalia, with former Prime Minister Manmohan Singh set to guide the team. West Bengal is being advised by Nobel-laureate Abhijit Banerjee, among others.

So far, states have mostly been advised by the state planning boards, said Lekha Chakraborty, professor at NIPFP. However, it’s a good trend, especially in the current circumstances when the reaction to the pandemic has to be state specific, she said.

To be sure, there have been exceptions. Gita Gopinath, now chief economist at IMF, was advising the Kerala state government on economic matters until her resignation from the post in 2018.

The current situation a three-way crisis, said Sudipto Mundle, member of the Fourteenth Finance Commission. It’s a health crisis, with the need for testing and treatment; it is a humanitarian crisis, especially for the daily wage earners and migrant labour; and it’s an economic crisis, Mundle said. “In all of the above, while the centre provides back-end support, states have the central role to play, with no one-size-fits all.”

According to Chakraborty, the exit strategy from the lockdown has to be state specific to prevent the “fallacy of aggregation". Advisory committees can help design policies which meet the needs of individual states. “States will have to identify strategies for a sequential opening up for individual sectors... While the broader objective would be to revive economic growth, states will have to keep in mind the humanitarian aspect of the crisis,” she said.

State-Centre Division

Under the Constitution of India, a number of key policy areas still fall under the purview of states.

For instance, public health, sanitation, hospitals and dispensaries are under the state list. Economic and social planning, social security and social insurance, welfare of labour, employment and unemployment are in the concurrent list, indicating these areas fall under both the centre and states.

While the states are responsible for delivery and implementation in a number of these areas, the central government needs to provide financial support, said Mundle. This calls for greater coordination between the centre and states.

So far, only the committee set up by Rajasthan has submitted recommendations. It suggests and helps the state identify priority activities and regions where business can be opened up. It also suggests step to help small businesses, migrant workers and the farm sector.

Altering Landscape Of Fiscal Federalism

The advisory committees could also help states come together on policies of common interest.

Chakraborty added that economic councils set up by states will have a significant role in advising sub-national governments on managing deficits, planning borrowings and designing fiscal policies to support and stimulate growth.

Also Read: Financing The Covid-19 Response: Challenges And Choices

For instance, at the current juncture, there has been a convergence within states on several key financial issues, such as the need for the central government to increase states’ debt limits, said Chakraborty. Given the constrained fiscal space and the limits of taxation as a policy tool to address the macroeconomic disruptions, India needs greater fiscal-monetary policy coordination, she said.