Lessons from Mr Panagariya’s sudden exit: Need for clear appointment rules…

Prof Vivek Moorthy of IIM Bangalore keeps telling me that instead of obsessing over this and that monetary policy rule, we should focus on appointment rules of central bankers. He advocates a Non-renewable non-dismissable (barring serious breaches) contract for a central banker.

The reason behind this is simple. When we keep a term as open ended and renewable, it is natural for policymaker to be more submissive to the government authorities eyeing a second term. Moreover, it keeps the media grapevine buzzing over whether the term would be renewable or not. Whatever the decision, the politics behind eventually follows. Also one should work under the pressure of dismissal provided one has followed the broad code of conduct.

The term of the contract should also be reasonable so that there are no quick fixes on both sides. The short term tenures gives government powers to keep changing positions leading to political interventions more frequently then needed. Also the short term tenures gives those who are interested in short term roles just to get that “served policy position” on their CVs. Currently, RBI gives a 3 year term which is open for renewable leading to all kinds of problems as seen recently.

Interestingly, this does not apply to central bankers alone but policymakers across areas. We are seeing this in case of the recent sudden exit of Mr Panagariya, Vice-chairman of Niti Aayog. If his terms of contract were clear and it was known that he would be available till this date, there would be no scope of rumors.

Prof Panagariya says his leave from Columbia University was over and he had already extended his visit by a few months. Given he took charge on 13 Jan 2015, his Columbia term was over on 13 Jan 2017 but continued. Apparently univ said either come back or let go of your job. And as economics  101 says people respond to incentives. And a Columbia university job provided better incentives. This is how most policymakers picked up from foreign universities usually respond.

Here the Government is equally to be blamed as it should have started looking for a replacement much earlier instead of making it all so sudden. The Indian government has not been very active in these policy appointments as seen so often in case of RBI. May be Niti Aayog is not really a priority as we make it out to be. It already has twin powers with a CEO position as well.

If these appointment rules were clear and non-renewable, we would know when such and such role will fall vacant and needs to be replaced. There would be no falling back on political powers for renewing contract or early exits as has been the case here.

Further AK Bhattacharya says that getting experts from foreign univs is only a short-term gap. We need to build our own cadre of econs as earlier:

There is no substitute to nurturing talents within the government particularly such specialist talents that cannot be sourced from the civil services. 
About twenty-five years ago, the Union government’s key economic ministries and other institutions had such eminent and distinguished economic advisors and policy administrators as Bimal Jalan, Montek Singh Ahluwalia, Shankar N. Acharya, Vijay L. Kelkar, Rakesh Mohan, Deepak Nayyar and Nitin Desai in different roles advising the government on economic policies. None of them was imported into the system one fine morning. They were allowed to remain part of the government for a reasonable period of time and in due course became important players in decision making. The net outcome of that exercise was that successive governments benefitted from their advice and economic management skills for several decades. 
Unfortunately, that practice of nurturing specialist talents within the government system was discontinued from the late 1980s. Consequently, even as many of these names retired from service or quit the government, starting from the early 1990s to the early years of the 2000s, the governments in the last decade and a half have had no benefit of such experts while framing economic policies. Simultaneously, identifying new talents to fill specialist posts in economic ministries became a difficult task. Yes, you had a Kaushik Basu or a or an  But they did not stay in the system for long.
It is, therefore, time the Modi government started building a team of economists who could be groomed and trained by allowing them to grow and gain experience of working in different central ministries and organisations of the government. This might require proper training of the young economists who join the Indian Economic Service. The growth path for those Indian Economic Service officers, who are talented, should be closely monitored and if necessary fast-tracked in deserving cases so that the government in coming years has the benefit of top-class expert advice from within the system instead of relying only on experts, who are hired for a short tenure and stay even for a shorter term.
Equally important would be to allow lateral entries of professional economists at different levels so that the government has an expanded pool of talents from which it can identify and select the best technocrats to be part of economic ministries. It will be important for the government to remember that such talents could also be sourced from the many economic policy think tanks and top academic institutions within the country. 
Hiring top economics professors from foreign universities can help up to a point in meeting a short-term gap, but that alone cannot be a substitute for building a team of economic policy experts within the government that can serve the long-term interests of its economic policy formulation.

I don’t fully agree to this. We need a cadre of economic officers but the model should be different.

We have moved from the earlier extreme of having only a few people run all policy positions to the current one of these positions going only to foreign univ people. Actually in both cases, the common thing is foreign univ component. The earlier ones after their foreign univ training (also at IMF. World Bank etc) stuck to several govt policy roles as if there was a game of musical chairs. Just that unlike the game, a chair was rarely removed and we just saw policy jobs changing between same persons.

We need a model where we see new faces and not the same ones across policy positions. No one asks the question, why do experts necessarily go to a foreign university and not an Indian one? Why can’t we groom the next set of policymakers from India’s universities/institutes? Why are the incentives such that experts are okay doing policymaking but not academic teaching in India? Why don’t we see on our institutes, faculties on leave to serve some policy position?Is it always necessary to drum up some foreign univ/institute connection to consider a person eligible for policymaking in India? Why can’t we see our regional experts head any of these places?

To sum up, there is plenty to think about these appointment issues. For a very long time, the qualifications for a policymaker is either a life-long experience in Delhi or some corner of US. We need to clearly question and change this system…

9 Responses to “Lessons from Mr Panagariya’s sudden exit: Need for clear appointment rules…”

  1. Anil Says:

    Very interesting insight indeed. Though we do see top faculty at great academic institute in India serving policy bodies(present MPC is case in point), but we need more of it.

    • Amol Agrawal Says:

      Indian representation in MPC was perhaps because getting faculties from abroad once in two months would have been costly etc 🙂

      • Anil Says:

        Hmmm……. That is exactly true. Though in a multinational world sharing data across the border might not be an issue in private sector. But govt data is little more sensitive thing.

      • Amol Agrawal Says:

        Hmmm. If one is worried that we need MPC members locally to keep data within the country, it applies even stronger to other policymakers picked from foreign univs/locations…

  2. A Vasudevan Says:

    A good effort. However, a few things should be noted. Most Indian degree holders do not hold a chance to serve at higher positions in general and surely these days. This only reflects the fact that there is no confidence in the Indian education system. Most Ph Ds from Indian institutions are implicitly regarded as ‘fixed’ or inferior in quality compared with Ph Ds from abroad (whatever be the University). This used to happen even in the past at the Universities as well as in Government and semi-Government jobs. An Indian degree holder will have to go abroad after getting a low or middle position to upgrade his capabilities. At times such upgrades also fall by the wayside when pitted against foreign degree holder.
    Professors with Indian degrees will still not be favored for Committees if Professors with foreign degrees are available. This is in contrast to people like VKRV Rao, P R Brahmananda, Gyan Chand, L C Jain, B N Ganguli, V R Panchamukhi who were good teachers and researchers who as far as I know did not have foreign degrees. Surprisingly, even in IMF and WB, the tendency is to prefer a person with a foreign degree even if it is equivalent to BA from France and ignore a Ph D from an Indian university!
    Why should Governors be on fixed and non-terminable contracts? In fact, Governors with Indian degrees have served the RBI as well as those with foreign degrees.
    It should also be remembered while fixed term of 5 years is good, it need not be such as to be non-terminable. There is the question of accountability of Governors to people and to people’s representatives. Governors are not elected: they are nominated after some due process of selection.
    There could be good Parliamentary Committees to ask Governors to testify under oath about the economic situation every now and then, once a quarter or once in 6 months. That will be good enough to give the public a chance to understand how good are the Governors in office.
    You have many bright young men in India who are as competent as those with foreign degrees who could be tried. Mind you, years ago, Rangnekar wrote that Indian businessmen in the past did not hold MBAs and yet did well in businesses. The same was true also of Universities before 1960s. Slowly the rot started in Indian education system. The problem is recognized but very little is done.

    • Amol Agrawal Says:

      Superbly said Sir. By non-terminable I meant Governments should not be free to dismiss people. Obviously, the Governors are not elected and should be made more accountable as you mentioned. There is little doubt we copy the west too selectively. Inflation targeting and MPC yes but no to regular representations to Parliamentary Committees.

    • Anil Says:

      Sir, I think sanctity of a parliamentary committee is taken far more seriously in west. The testimony is even televised. We know the result of JPC on 2G and others during previous UPA regime.

      At present, its almost hilarious to see, governor telling the are they are planning to buys note counting machine after 8 months of demonetization.

  3. Lessons from Mr Panagariya’s sudden exit: Need for clear appointment rules… - Daily Economic Buzz Says:

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  4. Lessons from Mr Panagariya’s sudden exit: Need for clear appointment rules… - Daily Economic Buzz Says:

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