Not Economists for FM

CONTEXT: Falling Indian Economy due to COVID induced shocks requires the Finance Minister to employ her political ingenuity rather than just economic intelligence.

Challenges faced: following challenges require greater skills in politics than economics.

• Increase Government spending: One out of Four economic engine as functional - Private consumption, Private investment and export all are devasted due to pandemic.
•  Only Government spending is the engine left to power growth.
• Deciding the quantum of Spending: 
• Quantum of government spending is a political decision since there are two options available 

• Raising of additional funds by borrowing, pushing interest rates up for the entire economy.
• Monetisation of debt (printing new money), thereby risking future inflation.

• Political choices have to be made around selection of sectors, section of population to be covered and different types of industries.

• Principle of austerity to be followed in order to cut down on un-necessary expenditure.
• This requires collaborative approach with finance minister steering inter-ministerial decisions.

• Checking Deteriorating State Finances: States have limited revenues to raise additional funds such as printing money, and have to borrow on higher interest rates after complying with centre’s guidelines. 

• It requires a political finance minister to engage with chief ministers and state finance ministers to ensure that ‘Team India’ works with a united purpose;

• For E.g. through raising taxes or a provision of easy borrowings from the Centre.

• Push for Structural Reforms: required for stimulating private investments in the medium term. It becomes challenging since reforms inevitably creates a set of losers and winners. For E.g.- 
• Divestment of a handful of public sector banks is a political call.
• Reforms in factor markets like land and labour needs political management.

Conclusion: In times of dilemma, India needs a Finance Minister who is a good negotiator and arbiter of interests and advices.