When YV Reddy Quizzed Arvind Subramanian

What advice from India’s chief economic adviser did the Modi government follow? How’s the work culture at the International Monetary Fund?

Arvind Subramanian fielded these and other questions from YV Reddy, former Reserve Bank of India governor, at the launch of his new book—Of Counsel: The Challenges of the Modi-Jaitley Economy — about his term as the chief economic adviser from 2014-18 succeeding Raghuram Rajan.

At the event organised by Manthan India, a platform where thought leaders share their ideas, Reddy started by saying: “We are described as argumentative Indians. My only request is we should not be argumentative Indians. We should be questioning Indians. Argument is just for argument’s sake.”

Here are Reddy’s questions and Subramanian’s answers.

YV Reddy: How did you find the work culture at IMF as compared to the work culture in the government of India.

Arvind Subramanian: I have to say that there was something remarkable that I found. In the last years of my stay at the IMF, I was in the research department. And obviously, there were some very brilliant people there, and so intellectually it was a very rich atmosphere. At that point I was heading a unit, but nor the biggest unit and we got to have very rich interactions.

But in terms of the freedom to say things, within, and especially outside, I found the government of India much more open than the IMF.

I’ll give you two examples. I wrote an academic paper on Nigeria and you have to get it reviewed before you can publish it and the African department actually said this should not be allowed to publish.

Just before an international summit, Raghuram Rajan and I wrote a paper criticising foreign aid, and the consequences of us of having written that from within the IMF & generally, was much more severe than anything that I have faced at the government of India.

The whole fact of questioning Indian ecosphere turned out to be very true.

YV Reddy: You were an analyst and an academic before. You must have had some impression of India economy and culture, difference between expectations and what you found.

Arvind Subramanian: I was certainly prepared to have to negotiate the Indian bureaucracy which we know is legendarily supposed to be difficult. But I found the Indian bureaucracy is much easier to navigate than I had feared. Partly because I think that if you adopt the attitude that you are going to learn from everyone in the hierarchy, not just from the secretary, but from the joint secretary, the deputy secretary, undersecretary. If you don’t pay attention to rank, and create an atmosphere where everyone can come and talk and provide advice, and have a mutually beneficial interaction, I found that actually India surprised me once again on the upside.

YV Reddy: Which chapter did you enjoy writing the most. Is there any chapter that you wish you had deleted or any subject that you should have included, apart from the resignation of the governor? Must have found different reactions from different people. Is there any distinguishing characteristics to any group? For instance, bureaucrats, politicians etc.

Arvind Subramanian: I liked the introduction the most. I’d written the introduction to Goods and Service Tax. As a writer, I found that I loved mixing memoir, analysis, psychologising, all the things that makes for a readable economics book. My favourite book of all times as an economist is called “The Economic Consequences Of The Peace” by John Maynard Keynes. What’s wonderful in the first 50 pages, is that he was able to analyse the psychology of the three main actors in the Treaty of Versailles., and how their mental make-up determined the outcome of the Paris Peace Conference. While writing that GST chapter, I found that maybe I should get away from economics completely, and try writing about how the psychology of individuals and key protagonists who are involved in policy-making—the bureaucrats, the politicians, the ministers. Also, the way economists underrate the role of individuals and psychological factors in decision making.

YV Reddy: You were the chief economic adviser for four years. Which is the advice the government followed most faithfully, and which is the advice which the government rejected faithfully, and from this, what did you learn about giving advice. Also, tell us about the best joke you made while in government, and the best joke on you while you were in government.

Arvind Subramanian: The GST is a very good example of what advice was followed and what was rejected. I wrote a revenue neutral report on what the structure of taxes should be. I think that the report that I had presented was not followed fully. At one level a large part of it was not adopted. But the spirit of that report continues to pervade all discussions on the GST. As an economist, should I focus on the fact that I said there should be three rates, but actually there are six rates or seven rates. I’m very grateful that even today, that is the reference point on how the GST should move.

I had breakfast with Paul Krugman after demonetisation. I asked him how would you have modelled the impact of reducing cash on GDP. Whoever you spoke to would have said that if you take away 86 percent of the cash out of circulation, there would be a significant impact on GDP and there wasn’t.

To me the question is why was that the case. Are we not measuring GDP well? Because we don’t measure everything about the informal sector. Even if we do capture the relevant things, we may be mis-measuring that. Or is it the reason that we just don’t understand the role of cash in the economy. Or is it the case that we have a very resilient economy, where even after a lot of hardships, there are social safety nets which kind of cushion the impact on demand, and therefore on GDP. And honestly, I don’t know the answers to these questions, but I wanted to pose these as puzzles.

There have been many jokes on me, but I’m trying to think of the best joke that I cracked. I’ll come back to that as soon as I have an answer.