29/07/2016
Barely a week ago only a handful of Malayalees had probably heard about Gita Gopinath, the Harvard economist who was already a star in the global macroeconomic scene. Despite her roots in Kannur, even the mainstream Malayalam dailies that regularly dish out profiles of people with even a slender Kerala connection didn’t bother about this high-profile economist.
Then Chief Minister Pinarayi Vijayan named her his economic advisor. Today Gopinath is a household name in the state. Unfortunately, for wrong reasons, as in typical Kerala fashion.
V.S. Achuthanandan, Vijayan’s rival within his party and a former chief minister, has reportedly questioned the move saying Gopinath endorses the so-called neo-liberal economic agenda that goes against the Communist Party’s stance. The party’s top decision making body, the Politbureau, is apparently surprised at Vijayan’s move as they were not in the loop about Gopinath’s selection. And not surprisingly, the opposition Congress Party too has sounded cheeky, though their own governments had followed policies similar to those Gopinath espouses.
Gopinath, 44, is a professor at Harvard, and the first Indian woman to get tenure at the ivy-league university. She did her Ph.D at Princeton University under the guidance of Kenneth Rogoff, Pierre-Olivier Gourinchas and Ben Bernanke, a former Federal Reserve chairman. In 2012, when French President Francois Hollande announced a plan for business tax credit and higher sales tax to spur growth, he was adopting an idea championed by Gopinath.
Why does Vijayan need such a high-profile economist, and that too one from the U.S., as his advisor? He already has an economist, Dr. Thomas Isaac, as his finance minister. And Kerala’s financial position, though desperate, is not really complex. The state spends more than it earns, and hence it's grappling with a shortage of cash. A significant part of the state income is spent on salaries and pensions and other unproductive areas. To tide over the scarcity of funds, the government is forced to borrow money every year, accumulating interest-bearing debt. Dr. Isaac, for sure, is smart enough to tackle these problems and he has already articulated many plans in the state budget. For instance, he has bluntly pointed out in his budget speech that corruption and sloppy administration were the main reasons the state failed to collect the targeted tax amount. That's something the chief minister can fix if he wants to. Moreover, a seasoned politician like Vijayan knows only too well what is ailing the state. So why go for an American economist and get into such controversies? That too after his choice of other advisors created enough trouble? And yes, there are enough left-wing economists in our country and elsewhere that he could’ve hired.
Well, the appointment of Gopinath is one of the smartest moves Vijayan has made since he took the state's helms two months back. Forget about the bickering in the party and the brouhaha in the media. In one stroke, the chief minister has sent out a strong signal to investors, especially those global money bags, that he isn’t your archetypal Communist who steadfastly denies anything that's seen as capitalist. Kerala’s desperate need of this hour is to win big-ticket investments that will help boost employment and revenue generation. With an economist of Gopinath’s stature as his advisor, Vijayan doesn’t have to try too hard to convince a global investor that he means business, and that the state’s policies aren’t outdated. Gopinath has already said she hopes to “play a convening role to connect various state departments to the knowledge leaders from around the world in sectors relevant to Kerala like public finance, management, entrepreneurship, labor and development economics.”
A global investor is more likely to trust a name like Gopinath than a bureaucrat making a sales pitch. It’s almost like Shah Rukh Khan endorsing Hyundai: when it came to India, nobody had heard about the South Korean carmaker and the company needed a name that sells. See the reaction of global investors when Raghuram Rajan said he isn’t continuing as the Reserve Bank Governor. They panicked not because India can’t get another governor for its central bank. Rajan is a trusted hand as well as a well-known brand in the global economic scene, and people need that element of trust when they do business. They want to make sure the policy makers are solid, so that their policies would be consistent. Hiring Gopinath as the chief minister's advisor goes a long way in establishing that trust.
And then comes her expertise as an international economist. Among the Indian states, Kerala is perhaps the most vulnerable to external shocks as its economy is heavily dependent on countries in the Middle East. The billions of dollars that expatriates remit every year is a significant driver of the state’s economic growth, so much so that Kerala is often called a `money-order economy.’ With the Gulf countries facing a massive challenge after crude oil prices slumped, the state needs to formulate economic policies that will help it cushion some of this impact. An economist like Gopinath can play a key role here. And Vijayan has figured it out. That’s a smart move.