Indian economy can achieve a growth rate of 9% if it gets a clean patch
hello and welcome to business today I am Siddharth zarabi and with me today a very special guest Sanjeev sanyal the former principal economic advisor in the Ministry of Finance and now a member of the prime minister's economic advisory Council Sanjeev a very warm welcome to business today thank you for your time uh we are talking at a time when the latest inflation numbers in India as well as the United States have sent various signals to the markets and the broader economy starting with your views on India's inflation and where it stands and how it's looking to you in the weeks and months ahead well um the rate latest print for the Indian inflation uh Consumer Price inflation has come out at about seven percent as you know this is outside of the two to six percent range which the monetary policy uh committee is uh supposed to Target so in that sense clearly it is outside of our uh comfort zone but I would like to highlight the international context in which this is happening as you're aware uh you know International commodity prices particularly Energy prices have been elevated now for some time and although they have come down a little bit on the margin they are still very elevated now and this is feeding through to inflation globally um virtually every developed economy is seeing record-breaking inflation many Emerging Markets are seeing inflation running into 70 80 I mean countries like turkey for example so um in that context I would argue that India is doing rather well this is not to suggest that we are not concerned about it obviously we want to maintain this macroeconomic stability that we have earned through hard work I mean introducing that inflation targeting framework when we did that in the years 16 17 18 um you know we had to earn that macroeconomic stability we're enjoying that now but we wouldn't want the Gap to come out of the bag so given that context I would argue that we will be you know be quite as far as possible using as responsible tools we can keep that control now of course I can't speak for the monetary policy committee uh but I think there is a consensus that you know responsible macroeconomic management is key to uh key uh routes to our economic uh management overall Cindy you spoke about uh what happened to energy pricing across the world and consumers in the west who have never seen Energy prices and food prices like this it's like a second oil shock only it's playing out in a different way and for different reasons uh how is India compared to other economies when it comes to the outlook for inflation there are two points of view one says that perhaps the worst is now behind us and therefore fears of a global recession have receded the other says you don't know what would happen next to three months and there seems to be a bit of skittishness in the markets as a result well of course I am in no position to predict how exactly Russia will over will not supply energy to Europe so that is the immediate context but let me say that of course India as an energy importer at least for the foreseeable future will be impacted but whatever happens out of that cycle but there is a bigger story here Beyond just the immediate you know shock from oil prices but also from droughts incidentally food prices are also being influenced by or will be influenced by droughts in Europe in China and so on so there are these immediate concerns but I think there is a bigger concern in the rest of the world particularly in the West in that they have not done the kinds of supply side measures needed to keep the productive side of the economy going and you will remember the many debates that we had during the covet period where economists like myself had been making the point that look the uh post-covet world is not a re-inflation of the pre-covered world it will have its own Dynamics uh its own Technologies its own Supply chains its own many other things so in that context you have got to maintain uh supply side measures you've got to keep investing in infrastructure and so on and not use up all your ammunition in uh doing sending you know demand uh or more specifically consumption uh stalking measures alone packets of money absolutely stimulus helicopter money helicopter money or various kinds so they've used up their ammunition have not spent it on creating supply side capacities they have not done any supply side reforms I mean you look at some of the variety of their sort of systems so to speak economic systems policies Etc they're all outdated and they have not been keeping up with it and contrast that what what we have been doing over many years even before covet we were doing serious supply-side measures GST cleaning up the banks insolvency and bankruptcy code the inflation targeting framework itself but even during covet we continue to do reforms we opened up the Drone sector we opened up the geospatial sector we removed all kinds of outdated regulations from the BPO sector from the Telecom side we opened up trade Finance in multiple ways so we have kept doing supply side measures as a result of which our supply side is now vastly Superior so coming back to the point about inflation yes we have some amount of in this imported inflation problem but our supply side is in good shape our core inflation the underlying inflation of our system um is not a concern I am not so sure about the West um even if you did not have these immediate concerns their economic systems simply are not in a position to grow at any rapid rate without being able to generate other forms of inflation whether I mean they have shortages like in the UK I mean even the us there are shortages of Manpower in in skilled areas including truck drivers in many cases so I'm I'm just pointing out to you that the supply side matters the supply side matters in the Indian context therefore do you think inflation has peaked out well domestically driven inflation has peaked out core inflation has peaked out but can I make some statement about what will happen to Energy prices abroad no uh will we be immune given that we are major importer of many Commodities are we immune to Global trends no um there will also perhaps be some turbulence to food prices given the droughts around the world and even in India we have had uneven uh rainfall and and heat waves which have impacted wheat production for example yes and you know we have comfortable food stocks at home uh but you know we can't be immune to what will happen in the rest of the world if China suddenly needs to buy a large amount of extra rice so point I'm making to use we are not immune to the rest of the world disruptions in production say in Europe from uh you know blackouts over winter for example uh that will have an impact on us I mean we import chips and all kinds of uh parts and Machinery from say Germany and other parts of Europe those could get disrupted so what I'm trying to say is we are a part of the world we cannot be immune to that but let me say that India is part of the solution our supply side has been consistently be supplying to the rest of the world things that it needs whether it's of course the vaccines and pharmaceuticals is something of course we saw during the covert period but I think we will increasingly find that uh you know the deployment of Indian products uh and services is a key part of tempering inflation in the world not just in India I mean many of the things are being out many of the back offices now increasingly middle officers even front officers are being outsourced to India from the West particularly Western Europe that is key to keeping their costs going I mean Airlines like Lufthansa and British Airways and all these Airlines couldn't keep going unless they had large back Offices here in India absolutely Russian oil has helped sort of keep the overall Indian basket of crude a little tempered but our oil marketing companies have taken a big hit in the last few months because we have gone back to a quasi-administered pricing mechanism fuel prices of petrol Diesel have not been raised for many months now how long do you think this kind of situation can continue and the government and the oil marketing companies which the government owns Bears such a burden well in general we like the markets to function but when the market breaks down because of a random shock like a war certainly some amount of administering has to be done there's not this is not our first preference but some sort of guidance and management has to be done when markets break down because of certain exigencies so that's what we have done there has allowed our macroeconomic conditions at home to remain in control as oil prices have recently come off you will have seen we have also allowed some of I think as things stand right now oil companies are recuping recouping uh from the their sales so I think some amount of management is being done it's merely a matter of practical exigency it's not our default I don't think anybody wants to go back to the old system of complicated system or administrative prices um and as and when normalcy is uh returns to the global energy Market we will similarly go back to the old system of allowing prices to find their own level it's a far more sensible thing to do under normal successes but I said under circumstances where disruptions happen and interventions are needed and this is also True by the way of food prices you may have seen we have occasionally placed uh restrictions on food exports and so on um that's not because we are against uh food exports far from it we we think that Indian farmers are capable of if competing globally and being able to be part of our export machine but then there are times where you have to also temper it because you know you have these very unusual circumstances of major droughts around the world unprecedented at many levels I'm glad you mentioned that because you just told our viewers about the range of steps in some ways which has also included export restrictions and controls especially let's say on rice and wheat and other products in the recent past is that a sustainable strategy and uh is it a trade-off between impacting our exports to some extent versus controlling domestic prices let's be very clear in the medium term and long term we want India's agricultural sector to be globally competitive and it is in many segments and to be out there in the world and be supplying to the rest of the world in other words we should be part of the solution um but and even under these circumstances we will be exporting in many categories too but nevertheless we do understand that certain times markets do break down and when markets break down we have to put some sort of tempering ah measures in order to you know make sure that our own macroeconomic requirements the requirements of our own population are maintained I mean Indian interests have to be um continue to be managed through this so it's not black and white there are many Shades of Gray along the way but let me say that in the longer term we want Indian manufacturing Indian agriculture as well to export what about the interests of farmers because many farmer Representatives say that when prices go up it is a time for them to realize more and at that time the government of the day comes in and protects middle class interests by putting in price restrictions well it's a it's a call we'll then have to take should should we have completely free markets uh in which case we will also have to act in the other direction IUN prices fall we will also then need to think about minimum price uh price controls as well so you can't have it both ways so that if you have if you have we have decided as a society that there is a narrow band in which things are going to move then we have accepted that both ways it's a compact as a society now we allow for higher volatility that's also fine but then we have to allow it both ways my own view is that as things stand given the way our warehousing and other uh sort of cold chain networks and other things are set up as things tend uh I would argue that you know some intervention to maintain this band is fair enough longer term as you know I am in favor of uh having a much more liberalized agriculture markets combined with the cold chain that allows for the you know management using the markets themselves but as things stand though that code chain is not going to turn up tomorrow morning and you know some of the enabling Farm laws as you know have been also withdrawn so under given the current situation I think this is the best we can do fair enough uh there is also some commentary about our food grain stocks being at multi-year lows uh primarily on account of the fact that we also are providing additional support through the continuation of the Pradhan mantri Anna Kalyan yojana is that a matter of concern uh because I picked up some chatter that or food grain stocks are low and there's also some political commentary on it but we leave the politics aside as an economist do you think this is a matter of concern so we have now for many years had food grain stocks far in excess of what is the Norms that we had given to ourselves and till not so long ago the discussion used to be about how much wastage is happening it's getting diverted to the um alcohol industry and so on so in that context uh I would say that look maybe it has come come off from the peak but is it the case that it's inadequate no I think it's still reasonably adequate and although we ourselves in you know this Monsoon has been quite a uh rough Journey for many parts of the country pretty erratic very erratic I believe however in the very end it is now there's some heavier rain happening in the eastern part of the country which had a drought situation but nevertheless I don't think it's unfair to say that we should expect the Harvest to have green at least in some parts of the country it have been affected um do we have enough food stocks to be able to sort of write through that yes we do okay that's that's a good point uh in the past you have spoken about and other people in the government have also spoken about the necessity to look at any manner of stimulus is very carefully and time their withdrawals properly even during the peak of the covet the government followed a certain strategy you were in North block at that point of time my question is is it time to withdraw the stimulus of the Anna Kalyan yojnav which is the free food grain that is being provided at a considerable cost to the ex-shek certainly it was an emergency measure it was an important one over a period or two years uh I'm sure the the my colleagues in the um not block are re-looking at what what is the current situation I am personally no longer involved in that um issue anymore uh your assessment of Atman neighbor uh initiatives now I am talking about the broad thing because you've also been involved in that how Atman neighbor is the Indian economy uh two years after we started going down that route your broad stroke sense of where we stand today so first of all let me clarify what we mean by Offman very often it's uh it's taken to suggest that we're trying to go back to uh socialist era import substitution uh not at all the case uh this is a former RBI Governor is also critical of the production linked incentive scheme for example just to interrupt you so I think uh well that is an incentive towards scaling including for export purposes so that's a completely different uh issue but let me talk about Atman and the key thing to understand about atminar is about resilience and clustering effects in other words leveraging our domestic strengths whether it's our Market or engineering or natural resources whatever may be the case in order to have a minimum clustering of activity where either are are competitiveness is something that can be enhanced or the resilience of our economic so for example critical inputs into our Pharmaceuticals industry they can't be you know totally reliant on single Source uh foreign supplier so in all those areas where you know some amount of protection may be needed that I think is uh not an unfair way of thinking about it you know we have seen over the last two years Global Supply chains do get disrupted and protecting our interests is not a unreasonable thing to do it's a common sense thing to do this is not to suggest that we try to go back to you know having this uh as I said 1960s or 1970s view of import substitution that is not called the case nobody wants to go back to driving around in Ambassador cars but protecting our interests uh systematically is something we will do and this we will uh do even when we are entering into foreign trade pacts for example we did not enter into the rsat because we judged that it wasn't in our interest this doesn't mean that we are against foreign trade pacts we are obviously going ahead and signing with other countries we've already done with UAE with Australia we are in serious discussions with the UK which hopefully will get done by before the end of this year and so on so so this is a very different approach now talking about the pli scheme well the pli scheme is certainly a different kind of innovation given our history historically we have had some sort of an internal bias about scaling up and sort of uh you know eulogizing uh uh sort of industrial midgets so I think we have moved away from that and sort of understood that scale matters our domestic Market allows us to create scale this is good for employment but it is also good for Global comparativeness I mean at the end of you want to compete in the world and be able to deliver in scale then you need well you need scale and in that is basically what the pli scheme is it's a one-time uh sort of incentive to allow Indian industry to reach International Global scales and um you know some Industries have been selected for doing that is it uh is it a use of industrial policy yes it is is it a return to in socialist era uh import substitution absolutely not why is raghuram Rajan critical of the pli thing well you should ask him okay we'll try that let's come to another good sort of good news today which is the massive investment announced and it's a big one by vedanta and Foxconn to do a semiconductor display Fab and assembly and testing unit 20 billion dollars will take some time to get off the ground there are other proposals also in the pipeline how significant is this Sanjeev especially because the 70s had seen a start in semiconductor Manufacturing in India and we were pretty neck to neck with even Taiwan but we lost out on the race well I can't go back and look at the 1970s the fact of the matter is um there are very good reasons why we should we do need to be in there uh not the least because now semiconductors chips and those kinds of things are an input into virtually everything so just like with critical inputs into Pharmaceuticals this is a critical input into the digital economy and we do need to have some capacity in it I'm not saying they'll replace the rest of the world but we do need some capacity here and so we are you know we do want them here the government's uh both Central and the relevant state governments have uh put in the effort to uh to try and attract this and um this is a part of uh both being at The Cutting Edge of uh technology but also part of our resilience plan and therefore very much in that uh Atman there were a scheme of things by the way uh the Americans are doing the same thing as you may be aware trying to reassure us these things for exactly the same reasons incidentally so I hope uh some of the non-resident Indian economists are based in the U.S are having who dislike our pli schemes and so on are raising their objections in their country of residents what about the new Global Supply order for the last three decades the world and even India believed in the relevance of global supply chain just in time outsourced manufacturing we are seeing a reversal uh to that and a realization that you can't just trust a one single country which by the way not only is been problematic for India on its borders but also globally as well is there a new Reckoning and Sandeep I ask you this as someone who is tracked not just present but even historical trade ties of India with other nations uh absolutely ah and again just like India cares about has to care about resilience uh so do Global Supply chains and other economies in the world and one of the things we found out through this uh last few years whether it's the war or covet or the tensions in East East Asia that an interconnected world is also susceptible to uh you know breakdowns and if your entire sort of business model is based on uh a single Source or a single kind of supply chain then obviously you are susceptible to that breaking down and breaking down everything as a result you know the old Story the Battle Is Lost with for for the want of a nail so in in that context India has a very big value proposition uh we we are one of the few countries in the world who can do scale in China kind of scale in terms of our domestic Market uh the amount of Labor we can bring to the table our engineering capacities and so on and increasingly our infrastructure which uh you know historically may have lagged behind but I think increasingly we are able to create high airport Sports highways in global quality so given that context and of course given our own domestic Market which is itself attractive in its own right um I think we are making a big pitch to be a part of the global supply chain and part of a global solution Sandeep over the last two years China plus one and that plus one being India has been spoken about at Global forums at the world economic Forum in Davos pretty much every conversation that I was part of this did come up do you agree with China plus one even if you sort of dislike the formulation because it kind of uh doesn't seem to be right but is India an alternative for Global manufacturing Global Capital versus our neighbor first of all we are already critical to the global Supply Services trade um and do remember even in manufacturing a significant part of the manufacturing is actually about the design the logistics and so on and a lot of it is already done in India so if we can design a chip why can't we also do the next step in manufacturing if we can design a car if we can design all kinds of electronic products and so on um you know I I don't think we are incapable of actually taking the next step and producing it um and we are seeing a lot of interest FDI has clearly been strong over the last few years even through the covet period um so I think you know we are capable and even at the margin we can see our own domestic manufacturers these sort of energy is coming back in some ways you can see credit growth picking up in recent months so I think we are in good shape financial markets are have repeatedly shown resilience and the capacity to fund all this and of course we are now the world's third largest startup ecosystem suggesting that the whether it's Innovation and Entrepreneurship is very much you know bubbling in this country Cindy before I move on to the final question on our growth prospects ah has our regulatory cholesterol come down you spent several years in government in the finance ministry and now in the prime minister's economic advisory Council an assessment over this entire period how much has our regulatory cholesterol gone down I would argue significantly may not be perfect but certainly from the days where you know we used to have you know everything tied up in red tape I think we have come to a stage where uh there has been a significant reduction of this red tape uh there has been a significant change in the attitude of our policy makers and and the Civil Service towards risk-taking towards business um and as I and and you know it's not just the central government level you see even States like uttar Pradesh historically not known to be very uh sort of welcoming of uh of investors and companies you see the effort that's being put in to attract investments from not just inside India but across the world so I think there has been a significant change in attitude and that has significantly fed through also to actual policies measures we have something called invest India underneath this startup India I mean the sheer effort coming right from the top from Prime Minister Modi himself to push for this so I think this is something that is very much there now this is not to suggest that more cannot be done and you know it's also a moving Target you know remember that certain sectors get opened up that creates new uh sort of avenues of investment new businesses they also need new kinds of rules and some of those rules we initially not turn out to be right but what we will find is our willingness to continuously go back and revisit them so it we've gone away from this you know we in the government know what is best for you and here it is to an attitude of consolidation of going back and you saw that with drones uh the Drone sector needed new rules um the ministry of civil aviation came up with a set of rules last year I think it was in March or April um it was deemed to be too tight and so a few months later uh it was withdrawn and a new set of much easier rules was done uh we are also seeing that with the data protection rule we that it was deemed not to be good enough we'll take it back rework it come up with a brand new one and so on so what matters in the end is responsiveness and the whole attitude towards uh Innovation and Entrepreneurship and I think there is a sea change in that even in the five years I've been here there's been a sea change in that absolutely let's move on to the final part and your assessment of growth just beyond the headline numbers numbers get revised our GDP is restated three four times inflation numbers get revised but your assessment about an economy where a lot of people said that uh it's it's moving in two separate directions the the weaker part the unorganized part the informal sector the msme sector is suffering whereas the larger organized companies have benefited from digitization have benefited from the post covet bounce back in consumption and this is now becoming a strain including parts of the rural economy syndic so first let me say that this uh sort of 1970s rhetoric uh you know big business is somehow in competition with small business maybe true in certain segments maybe there are certain industries where that happens but for the most part do remember that big business and small business are hardly in competition they are mostly in sync and complementary to each other most small businesses Supply to or use products from large businesses um even a small kirana shop is ultimately selling soaps and biscuits and other things from large companies so I think first of all let's get away from this uh this idea that there are their relationship is mostly of some sort of a comparative one and that one of them growing is somehow bad for the other other end of the spectrum what matters in the end is that the whole ecosystem of Industry grows if that happens then including large industry grows then the whole supply chain tightens up it benefits everybody GST grows the whole system formalizes it's a good thing for everybody and that formalization is happening it's a good thing for even for Small industry to formalize and we have given all kinds of incentives to allow that to happen so my argument as far as the medium-term growth prospects of this country is concerned I think our supply side having done years now of reforms and some very difficult reforms our supply side is in perhaps the best shape of any major economy in the world we are even under very difficult circumstances we are hitting about a seven percent odd GDP growth rate um but I would argue that if we say get clear roads as say you got between 2003 and 2006 you had a phase where International situation was particularly conducive uh Goldilocks kind of period then this economy can grow at nine percent now can I predict that whether we win and if we will get that kind of a phase no but I'm just pointing out to you that our economy is capable of that kind of thing so we have a very good robust car the engine isn't good Nick we have a good driver in place now of course I can't predict the condition of the roads and I wouldn't advise pressing the accelerator too hard till we till we get a good patch but even with this rough patch we are managing to do seven percent growth that is foreign in excess of any other comparable economy in the world I mean China or certainly Europe is probably going to recession but even China is nowhere in that same range of growth so we are clearly doing very well and doing it without our macroeconomic fundamentals going off kilter I mean even on the inflation front yeah it's above uh what we would like it to be but given the conditions and what's happening the rest of the world I think we have managed our macroeconomic stability indicators rather well so I think we are in good shape I would advise against unnecessarily throwing that out of the window trying to force growth through this I would say this is a good rate compounding is a good thing and if we get a clean patch we can probably grow at nine percent or more and and uh that's perhaps the best way to end this interview because nine percent would be something which would benefit all Indians as growth trickles around San Diego Thank you very much for your time with us today that was Sandeep sanyal the member of the prime minister's economic advisory Council talking about inflation growth and the state of India's economy with the hope that it will soon touch nine percent annual growth if you've been 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2022-09-19 10:25
