Arvind Panagariya quits NITI Aayog: Economist leaves behind a legacy that won’t impress many

First Post, August 01, 2017

NITI Aayog vice-chairman Arvind Panagariya’s exit is happening at the same time when the Narendra Modi government at the Centre is in the middle of executing its economic turn-around plan. It is clearly not a good time for a key member of the government’s intellectual inner circle to say goodbye to the country unless there is a compelling reason for it.

And it isn’t really clear what really caused Panagariya’s exit. The reason being cited for the exit — his intent to return to his first love, academia — is a bit surprising, for the simple reason that Prime Minister Modi himself had handpicked him for pioneering the new think-tank in January 2015 and the task has only begun. Panagariya was given one of the most prominent positions in the government’s policymaking machinery, and the Indian-American economist knew what he is signing up for.

Moreover, during his two-and-half-years at NITI Aayog, the economist was in absolute agreement with the government on most policy-economic issues, including the controversial demonetisation plan. It wouldn’t be an exaggeration to say NITI Aayog often took up the role of government’s mouthpiece to defend its various policy initiatives rather than acting as a corrective force like it was initially meant to do. Panagariya’s abrupt exit in the midst of critical action, and while working with a friendly boss is a tad surprising.

It’s been a disappointing two-and-a-half years for NITI Aayog. The institution has largely failed to live up to the initial expectations, and hasn’t evolved as a body that offers constructive criticism and opportunity for course correction for the government when policy decisions move in the wrong direction. Panagariya entered the scene on 5 January, 2015, after the erstwhile Planning Commission, one of the last symbols of Nehruvian era policymaking, was scrapped and replaced with a new body that was hyped as a think-tank that would offer new thinking to the Modi government. It was meant to shake off the redundant policy practices and mistakes and replace them with new ideas.

And in areas of agriculture policy revamp, education, social sector spending and digital economy, it has done good work. But it has failed to reinvent itself as an independent voice that could have guided the government; instead of objectively analysing proposals and offering constructive suggestions, it has instead become a follower of the government’s ideas.

By its very design, NITI Aayog began as a weaker body compared with its predecessor — the Planning Commission. The former didn’t have powers to allocate funds, but could only make recommendations to the government. Funding was the sole purview of the finance ministry, unlike with the Planning Commission, which could also allocate funds. Secondly, it couldn’t impose policies for state governments to follow, again something where the Planning Commission had a strong say.

In short, the Planning Commission was a body with an independent stature and character of its own, whereas NITI Aayog is a powerless institution. Panagariya couldn’t reinvent the Aaayog, instead he chose to go with the flow.

NITI Aayog is two-and-a-half years old today, and there are serious doubts over the scope and relevance of the establishment with respect to its mandate and efficacy in dealing with state governments’ development plans, particularly given that states have more say in deciding their expenditure plan, whereas Aayog lacks major powers.

As Pradeep S Mehta, secretary general of CUTS International, wrote in Live Mint, “NITI Aayog is yet to institutionalise a checks and balances mechanism to caution the government about the claims it makes, and apprise policymakers of the ground realities.”

Even the RSS-affiliated Right-wing economic think-tank Swadeshi Jagran Manch (SJM) was not too impressed with NITI Aayog’s performance. Early this year, during a roundtable conference on ‘Two years of Niti Aayog’, it was said that NITI Aayog had “failed to live up to expectations that it would recast India’s economic planning by making it more indigenous”.

Did this assessment play a role in spoiling relations between the Modi government and NITI Aayog, which in turn led to Panagariya’s exit? One needs to wait and watch for more clues.

At one point, Panagariya’s name was heard as a contender for the RBI governor’s post following Raghuram Rajan’s exit in mid-2016. His CV was impressive enough to be considered for the post. In the past, Panagariya has served as a former chief economist at the Asian Development Bank and has also had stints in various capacities with the World Bank, International Monetary Fund (IMF) and UNCTAD. He holds a PhD in Economics from Princeton University. In March 2012, the government of India honoured Panagariya with the Padma Bhushan, the third highest civilian honour in the land. But eventually, the government chose to appoint Urjit Patel, one of Rajan’s deputies, as governor.

As Panagariya bids farewell to his office, his track record won’t impress many. The body was born when the Planning Commission had almost become a redundant body. As the Live Mint article, the Planning Commission was “marred by bureaucratic processes and devoid of fresh thinking. It failed to keep its ear to the ground”. NITI Aayog came into existence with a new promise. But, in hindsight, it has also failed to offer major contributions to the government or offer constructive criticism.

The challenge for Panagariya’s successor will be to work on reinventing the body before it turns out to be another Planning Commission.

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