The pendulum in the finance ministry has swung from one end to the other. In October 2004, one of Indias foremost public finance policy experts, Parthasarathi Shome, was hired by Finance Minister Palaniappan Chidambaram as his advisor. That meant there were three high-profile and highly accomplished economists occupying key positions in the finance ministry at the same time. Rakesh Mohan as economic affairs secretary and Ashok Lahiri as chief economic advisor were the other two economists.
In just about three years and three months, all of them economists who came to the finance ministry from outside, made a difference to policy-making and were influential enough to make other senior bureaucrats in the ministry less important have left North Block. Rakesh Mohan quit in July 2005, paving the way for an IAS officer to take charge of the economic affairs department. In May 2007, Ashok Lahiri left the finance ministry for an assignment in Manila with the Asian Development Bank. And now Parthasarathi Shome has quit the finance ministry to take up a new assignment.
One might argue that the pendulum has not really swung to the other end. Ashok Lahiri has been succeeded by another economist, Arvind Virmani, as the new chief economic advisor. D Subba Rao, the new finance secretary overseeing the economic affairs department, is also a competent economist, even though he occupies that position by virtue of his being an IAS officer. The finance minister has promised the media that he was looking for a new advisor, although we know there is no immediate replacement of Dr Shome in sight.
But such arguments do not carry much conviction. Dr Virmani joined the ministry as chief economic advisor only in July 2007. But he has had such long tenures as economist in the finance ministry and the Planning Commission in the last couple of decades that he is hardly considered an outsider in North Block. Similarly, Dr Subba Rao is seen in the finance ministry more as an accomplished IAS officer than an economist. The fact is that the top team that prepared Chidambarams last four Budgets was dominated by economists Shome, Lahiri and Rakesh Mohan. Now for the first time, the top team in North Block has the predominance of IAS officers.
This shift is significant particularly in the context of the background in which Parthasarathi Shome left the finance ministry. Nobody confirms this, but a widely-held belief in North Block is that the secretary-level IAS officers in the finance ministry did not approve of a reporting structure in which Dr Shome could send his proposals or official notes directly to the finance minister. This became a contentious issue as Dr Shome insisted on sending his proposals directly to the finance minister and at least two secretary-level officials made their objections known to the finance minister. It is not clear what decision the finance minister took to resolve this issue. But Dr Shomes decision to quit mid-way in his extended tenure is largely attributed to his uncomfortable relationship with senior bureaucrats in North Block.
It must be conceded that North Blocks record in dealing with economists in key positions over the last few decades is pretty mixed. As finance secretary in the 1970s, I G Patel was in full control of North Block. Manmohan Singh also had a successful stint in the finance ministry as secretary to the department of economic affairs in late 1970s. Bimal Jalan returned from Washington in 1988 and became finance secretary in the National Front government of V P Singh. And Montek Singh Ahluwalia had the longest and most effective stint as finance secretary among all economists.
As finance minister in 1991, Manmohan Singh appointed Raja Chelliah, a renowned economist, as his advisor to recommend changes in the taxation policy. In addition, Dr Singh got Ashok Desai as his chief consultant soon after Deepak Nayyar quit as chief economic advisor. While Dr Chelliah left soon after he completed his taxation policy reports, Shankar Acharya, another reputed economist, joined Manmohan Singhs team as chief economic advisor. Even though, Dr Desai left within a few months of Dr Acharyas appointment, economists continued to rule the finance ministry during the entire tenure of Manmohan Singh as finance minister.
All the succeeding finance ministers Chidambaram, Yashwant Sinha and Jaswant Singh continued to rely on economists in steering fiscal policies. Vijay Kelkar and Rakesh Mohan joined North Block during this phase. The trend continued even during the first three years of Chidambarams stint as finance minister in the United Progressive Alliance (UPA) government. The first major departure from this trend is noticeable now. The present North Block team, headed by D Subba Rao, P V Bhide and Sanjiv Misra, will be supported by only one full-fledged economist in Arvind Virmani. That is likely to herald a new era in North Block with the IAS officers facing little resistance from economists. For now, economists in North Block may well take a break.