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Q.1 Could you take us through the fundamental idea of productivity boost underpinning this budget and the Economic Survey?

A: One of the important ideas in the economic survey and the budget is that the post-Covid world is not going to be a reinflation of the pre-Covid world. We are living in an environment where technologies are changing, geopolitics is changing, there’s climate change, supply chains are changing, consumer behaviour may have fundamentally changed thanks to the pandemic and there are many changes happening simultaneously. So, rather than pretend to know where this is going to go, it is important that we create a flexible economy that can adapt to the various things that might happen in the future and is resilient to the new shocks that come in. We mention these as a version of the ‘barbell strategy.’ 

Now, how do you create economic flexibility?  Firstly, you go out there, and we have done this for some time, liberalise the economy as far as possible, deregulate, simplify processes wherever possible so that the economy can respond to whatever it is that happens. In that context, your first option is flexibility. In the last one year, we have opened up many new sectors like drones, geospatial programs, the space sector and the trade finance factoring, and so on and we will do more if and when there are any more sectors that continue to be heavily regulated (which I doubt there would be very many left now) but by and large, that completes the deregulation cycle. We are using a similar logic for privatization. It is important to give companies freedom to be able to respond in various ways. So, other than the strategic companies that the government wants to retain, by and large, we want to privatise them and allow for much greater freedom to take commercial decisions. We are doing the same with monetization. We are quite willing to create new assets but existing assets that can be better deployed through monetization. We are following the same line of thought with process reforms such as cross-border insolvency, voluntary closure of companies as ease of exit is just as important as ease of entry. Each of these is way of ensuring that there is flexibility in the economy and a boost in productivity. 

The other side of this is that you also need to intervene in certain areas to be able to create scale, resilience and so on and that is the context in which we have, for instance, the PLI (Production-Linked Incentive) scheme as a way of building scale in certain target sectors or providing support to sectors that are important for economic resilience such as chips, pharmaceutical ingredients and semiconductors. You can see that resilience part of it is not efficiency in the static sense but in a dynamic, uncertain world, it provides a buffer to be able to take risks. Finally, one of the most important parts is the creation of physical infrastructure like highways, airports and telecommunications to support that productivity. The budget, of course, puts serious money to back this. 

Q.2 Would you say that what you just described is the sense of ‘agility’ that the Economic Survey talks about as opposed to a ‘waterfall’ way of managing things? 

A. Absolutely. It derives from a certain thinking process that is there both in the budget and the economic survey and in fact, has been guiding the economic policies for some time now. The way to contrast this is with the earlier way of thinking, the ‘waterfall’ way of thinking. The basic idea behind ‘waterfall thinking’ is that when you have a problem, you have the ability to analyse the problem upfront, come up with all possible solutions and then it is just a matter of implementing those solutions and then the problem solves itself. This is the broader thinking behind, for example, the ‘Five-Year Plans’ or rigid masterplans for cities. The idea at every stage is that there are some wise people sitting somewhere in the government who know everything that is worth knowing and they will tell you how things are. Friedrich Hayek in his Nobel speech called this the “pretense of knowledge.” And I quote him in the preface of the economic survey as well. 

The alternative approach is to say that look at every point in time, we will re-evaluate how things are going because we get new information, things change, new technologies arrive, we might get hit by a pandemic, as we recently discovered and so on. All types of unknowns and unknow-ables are continuously changing the dynamic. Therefore, the more sensible thing to do than trying to claim that you know the answer to everything is to have a feedback-loop based system where you evaluate how things are actually panning out and not how they look in the plan. 

Q.3 What would say the budget offers the investors as after all investment is an important part of the economic growth and holds much relevance for Invest India. Could you take us through some of the investment related points in the budget? One aspect we see coming up frequently is the digitization of India and the opportunities being unlocked there as well as a manufacturing push through the PLI (Production-Linked Incentive) schemes. What in your mind are the biggest opportunities for investors being unpacked in India? 

A. Most of what attracts FDI (foreign direct investment) is also what should be attractive for Indian private sector companies- which is that India is a good place to do business, with a lucrative market, a competitive and innovative workforce, and the presence of good infrastructure to support all these activities. A lot of effort has been put in each of these. For example, before GST (Goods and Services Tax), there was no domestic market. It was easier for Mumbai to trade with Shanghai than to trade with Delhi with difficult transportation, octroi and all kinds of state taxes making the process very complicated. So, the part of creating a national market is done. 

Similarly, we needed infrastructure like highways and ports, which we are still investing in but today, a large part of our country has international-level highways. Our ports have also become more efficient. With each step, we are enhancing ease of doing business. 

One area in which we have lagged is in the domain of processes. Let me distinguish here deregulation from process reforms. Deregulation is about removing the government from the things that it should not be doing but there are many areas where the government is needed as a regulator and a facilitator. However, its role has not been very efficient historically and very often, those regulations were getting in the way of things. Process reform, on the other hand, is about getting the government to doing things it should be doing in a better way. I mentioned voluntary liquidation, cross border insolvency etc. but there is one area relating to the knowledge economy where we need to get our act together and that is the issue of patents. If you want to be an important knowledge economy player, you need to have your intellectual property properly protected and promoted. Historically, the Indian patent system has not been very good. As recently as five-six years ago, it used to take 62 months to just do one patent. Since then, the system has been made much more efficient and compared to 7,000 patents annually, last year we had 28,000 patents which is a good improvement and many of the new patents are by domestic entities. Earlier, most of our patents used to be cornered by the MNCs. But this is still very low as compared to other countries like China where they had 5,00,000 patents in a year. Many things need to be done to make this better in India. One the process needs to be simplified, made more transparent and cleaner and secondly, the time taken to grant a patent needs to come down to the levels of China or USA, at about 20 odd months from the current 42 months so we should be aiming for a 50 per cent reduction in time. The economic survey lays out exactly what needs to be done to achieve this- we need to build capacities by hiring more people in this space and also simplify the process to a large extent.

Q.4 Capex, as we mentioned earlier, was a big highlight of the budget and the massive increase in capex is bound to create a multiplier effect for the economy. Can you a paint a broad picture of the future for our investors on what is the larger infrastructural vision that undergirds this huge capital expenditure? 

A. You are absolutely right. In terms of purely re-inflating the economy, crowding in and getting demand going, etc., capital expenditure is a very good way of doing it because it in one shot introduces the demand into the system and of course it hires people and creates jobs directly. A lot of this infrastructure is dispersed in different parts of the country because we’re building highways and airports. So, in various ways, infrastructure spend is a good way to kind of get a virtuous cycle going and that is the immediate reason of doing it. 

However, it has another advantage which is that it leaves behind productive assets and in a country like India, as you can imagine, infrastructure is an issue, so every time you solve it, by creating infrastructure, you’re not just creating demand, you are also creating supply for the future. The supply side capacity of the economy is getting enhanced, and you are creating assets for the future generations. So, this is why infrastructure is important. 

In this context, let me also say that we have an ambition of doing this at world scale so the facilities that are being created, we are not creating shoddy facilities that we are a poor country and the people of this country only deserve some shoddy infrastructure. Far from it, look at highways we’re putting, they are world-class highways. Some of our highways are now better than what you would see in some parts of the US. Our airports are top notch. And this is not just about building Jewar airport near Delhi, even if we go look at the airport built in Agartala, one of our most remote towns, but the airport may be small, but it’s been built to international quality. This is an important thing. 

Same thing, by the way of railways, that finally after generations we are changing the designs of our coaches otherwise, we had these very old-style coaches that were still being used. I don’t think many of us realise this, but if you go and look at photographs of Mumbai’s suburban trains from the 1920s, they are the same design. The last time there was a major change in railway designs was the introduction of the two tier and three tier AC coaches done back in the early 80s or the late 70s. We’re now introducing completely different kind of vista-dome or much brighter colours, bringing in better, lighter designs and of course, massive electrification. The stations are being upgraded. There are proper restrooms. All of this is a huge amount of infrastructure construction to improve the quality of lives of everybody. 

Q.5 This budget talks a lot about digitisation and creating a digital first economy and this is cross sectoral from a national tele mental health system to a one classroom one educational output through television set via digital technology to at an agricultural level the use of IoT (Internet of Things) in measuring irrigation and so on. Could give us a sense of this deep digitisation process of India and how it might be unlocking value including for investors? 

A. We are a large country and despite introduction of physical and transport infrastructure, Gati Shakti and so on, the fact of the matter is that we want to do a large outreach. Digital systems are the easiest way to do it. Digital penetration is one of the things that we have, as hundreds of millions of people now have some form of digital connect with the world and so, it is a good way to do a reach. 

Hence digitisation, and as it happens to be, we’re modernising at a time when this technology is available and if this were done 30 years ago it would have been a different thing, but the fact is that this is the 2020s and a huge number of digital capabilities exist in the world and there is no reason why we should not utilise the cutting-edge and leapfrog to this new era. So, this is basically what we are doing, we are leapfrogging using these digital things and as it happens to be this bodes well to software and digital and IT based capacities and strengths that we have. We are recognised worldwide that we are good at doing IT. And this is why we are doing it, it is a simple way to create scale, plays to our strength, and as it happens to be the period of history where we are modernising. 

There is another reason for digitising. It leaves behind the clear mark of when and how what ever happened. So, it creates a documentation trail, whether people like it or not. I mean we are having this conversation; you are recording it right? You can later on, if I deny something, you can play it back to me, and you cannot only do that, you can say that at 1:45 on the 4th February 2022 you said this at exactly this moment. So, this is important because a lot of the problems in India were essentially, whether it is rent seeking and harassment and other things that used to happen happened because of the problem of provability. This would solve that issue because there is clear proof that such and such thing happened at such and such time, and it is very difficult then for people to wriggle out of that easily. All of this means that we get much better record of what is happening. And the final reason is that as AI comes in and so do more of these platforms, one of the interesting things that can be done is that you can provide a feed through in different places in their local languages at the same time. So, you can already see AI and other things already beginning to quickly allow for different language usage. You can post something in one language, and it can get translated immediately or translatable and readable in different languages. And in fact, AI already exists in the way that I could have been giving you the speech in English and you could be hearing it in Tamil. So, all of these things are becoming rapidly available and there is no reason why we should not utilise it.

Q.6 As we draw to a close of this interview, let us talk a little about data which was one of the key points mentioned in the economic survey. There is in recent times been a lot of talk about how India is data rich, and the economic survey talks about the feedback loops to governance and almost gives a sense of real-time governance possibilities. Could you talk a little bit about how India could unlock value from its data wealth?

There are several parts to this question, one is from the policy perspective but in part what you’re asking about is the fact that week can unlock it in various ways in terms of anonymising data, for example, mined for medical purpose etc. So, there are many uses for data, the important part here is whether I am a policy maker or I am a researcher in a field where I am trying to test consumer behaviour or I am trying to look at medical records and trying to find things, an important part of this is that we can, rather than be a conjecture based thinking, the availability of large amounts of data allows you quick testing and feedback of whatever it is you are saying. 

One of the major problems of this waterfall approach is that it is basically a conjecture-based system that you may do some initial research but essentially you have already formed an upfront view of the world and on that view of the world, you then have a meticulous implementation plan and then you carry on and implement it. This is the reason you will see very often when something fails in India people will always say “Oh the plan was good, but implementation was bad.”

But, in an agile world view this is a completely meaningless statement. If the outcome was bad, the plan was bad because that is all that you know but what is the proof that the plan was good unless it has worked somewhere. So, this conjecture-based upfront waterfall approach can now be replaced by saying let’s try out something which seems to make sense and now let’s see if it actually leads to the outcome, it is predicting and if it doesn’t lead to that, you can try something else out. At the very least, you don’t have to persist for 40 years or five-year plans and then discover it doesn’t work and then blame it on the “Hindu rate of growth”; it had nothing to do with Hinduism.

Q.7 The pandemic also caused disruption in every sector and the budget has recognised this and enhanced the ECLGS scheme by about INR 50,000 crore. What kind of support do you think it will give various sectors which could help them nurture themselves back to growth including creating much-needed jobs and finally, what is your broad expectation of the Indian economy for the next one year?

A. In the economic survey, we have predicted that in the coming year, the year 2022-2023, our expectations is that the Indian economy will grow between 8 - 8.5 per cent and in the interest of transparency, we have laid out exactly what our assumptions are whether our expectation of the withdrawal of liquidity, I think, is quite likely by major central banks, we have talked about supply disruption and so on and on that basis, said that we will grow by 8-8.5 per cent in the coming financial year. Let me point out in this context that this is more conservative than what the external agencies think it will be. The IMF, for example, expects about 9 per cent GDP growth for the upcoming financial year and hopefully, I will be the happiest if I turn out to be wrong in the end and we end up with a higher growth rate. 

But we have done this forecast based on this expectation and also let me point out that even with our more conservative GDP growth rate, we are still going to be the fastest growing major economy. For this year, we already are, the next year also we will be and if the IMF’s forecast is to be believed, the following year also, we will be the fastest growing economy in the world. So, this is quite a good achievement. 

Of course, there are many risks to this, one being energy prices are very volatile, there is a withdrawal of global liquidities that will happen, but I wouldn’t call it risk because it is being fully telegraphed ahead in our numbers already. But broadly I would say that the Indian economy is in very good shape and health in fact, if anything as compared to what one would have thought at the end of two major years of disruptions that we have had. We have $ 635 billion worth of reserves. The banking system, after many years of problems, has been cleaned up to a point where it is well capitalised and NPA levels are steadily declining and so I think given the circumstances, we are in a good place.