- The government has reconstituted the Economic Advisory Council to the Prime Minister (PMEAC or EAC-PM), dropping Rathin Roy and Shamika Ravi as part-time members. Bibek Debroy, who was appointed Chairman of the Council in 2017, continues in his post. What is the PMEAC, what role does it play, and how has the profile of this body evolved over the years?
- According to its (now archived) website, the Council was set up “with a view to provide a sounding board for inculcating awareness in government on the different point of view on key economic issues”. Its functions included “analysing any issue, economic or otherwise, referred to it by the Prime Minister and advising him thereon”; “addressing issues of macroeconomic importance and presenting views thereon to the Prime Minister”, either on its own or upon reference; and presenting to the PM from time to time reports on “macroeconomic developments and issues with implications for economic policy”.
How it came to be
- The PMEAC came into existence over three and a half decades ago, against the backdrop of a difficult economic situation. Prime Minister Indira Gandhi, who had returned to power in 1980, faced formidable economic challenges. The global oil shock and drought had led to a decline in the national income, and soaring prices.
- In this situation, Finance Minister R Venkataraman stressed to the PM the need to arrest the slide and set the economy on the path to stability and growth. Indira decided to rope in Prof Sukhamoy Chakravarty, a man who had taught alongside Amartya Sen and Manmohan Singh at the Delhi School of Economics, and who had, in the mid-1970s, headed the Policy Perspective Division in the Planning Commission.
PMEAC’s early years
- In the initial years of its existence, the members of the Council included the famed economist K N Raj, besides C Rangarajan, who would later become the Governor of the Reserve Bank of India, and Vijay Kelkar, who was the first Secretary of the PMEAC during 1982-83. Chakravarty, who briefed the Prime Minister occasionally on the state of the economy, continued in the post after Rajiv Gandhi succeeded Indira in 1984.
- Around 1986-87 — when the government had opened up the economy a little and allowed liberal foreign borrowings while spending to boost growth — the Council made a presentation to the PM, flagging emerging faultlines, and warning of an emerging fiscal imbalance.
- According to oldtimers, Rajiv acknowledged the input, and his Finance Minister, V P Singh, announced that the government had decided to accept the report of a committee appointed in 1985 by then RBI Governor Manmohan Singh to review the working of the monetary system, and to change the definition of the Budget deficit.
- Manmohan Singh himself headed the Council briefly when Chandra Shekhar was Prime Minister, before moving on to become Advisor to the Prime Minister in the months leading to the balance of payments crisis of 1991. Bimal Jalan, who was finance secretary in the V P Singh government and, for a while in the Chandra Shekhar government as well, was moved to head the Council. When P V Narasimha Rao was Prime Minister, and Manmohan Singh his Finance Minister, the Council held only a few meetings. The PM was briefed once in a while, but its minutes were not recorded.
The Vajpayee years
- Things changed after Atal Bihari Vajpayee became PM for the second time in 1998. The economy was again in trouble after the Asian crisis, and the Economic Advisory Council was expanded with the Prime Minister himself at its head. A 12-member Council for Trade and Industry was also appointed. Vajpayee’s PMEAC had heavyweights such as I G Patel, the former RBI Governor; P N Dhar, a former Secretary in Indira’s PMO; and noted economists Arjun Sengupta, Amaresh Bagchi, Ashok Desai, Montek Singh Ahluwalia, Kirit Parekh, and G V Ramakrishna. Also in the Council were Vajpayee’s Principal Secretary Brajesh Mishra, and Secretary in the PMO N K Singh. At a meeting of the Council in July 2002, Vajpayee unveiled an economic agenda for 8% growth — featuring plans to provide 10 million job opportunities annually, re-target subsidies and spending, push economic reforms, and better implement policies and improve execution. Through this period, the Finance Ministry remained dominant in economic policymaking.
The Manmohan years
- After he became PM in 2004, Manmohan Singh, conscious that he could no longer afford to focus on multiple economic issues, got his former RBI colleague Rangarajan to head the PMEAC, which was now more compact, with fewer than a half-dozen members. Rangarajan was given the status of Cabinet Minister — and with a powerful Finance Ministry under P Chidambaram and later Pranab Mukherjee, and a Planning Commission headed by Montek Singh Ahluwalia, the Council was seen as the advisory group best equipped to provide independent advice to the PM. During the 2004-14 decade, the Council often brought out its own review of the economy, besides reports on a range of issues. On the PMEAC in the Manmohan Singh years were economists such as Suresh Tendulkar — who also headed the Council for a year in 2008-09 — Saumitra Chaudhuri, Suman Bery, Dilip Nachane, Pulin Nayak, G K Chadha and Satish Jha. Manmohan Singh’s Council was the most influential in the over three-decade history of the institution. It drew its strength, most importantly, from the confidence and trust that the economist PM had in the head of the Council.
Revival in 2017
- One of the early decisions that the new government under Prime Minister Narendra Modi took was to dismantle the Planning Commission, which had for decades played an influential role in the allocation of resources to states, and to replace it with the NITI Aayog. Also, the PMEAC was not restructured under the new government.
- The Council was finally reconstituted 40 months into the tenure of the first Modi government, with Debroy, then a member of the NITI Aayog, as chairman. The revived PMEAC had economists Surjit Bhalla, Rathin Roy, and Ashima Goyal as members, and former finance secretary Ratan Watal as Secretary.