He was speaking at the FICCI Flo organized session on ‘India: Past, Present & Future Ready’
FICCI Flo organized an insightful conversation with KV Subramanian, The Chief Economic Advisor to the Government of India on ‘India Past, Present & Future Ready’. The session was opened by Ms. Ujjwala Singhania, National President, Flo, and moderated by Ms. Sunira Chamaria, former chairperson, Flo Kolkata.
Talking about the current challenges facing the Indian economy, Mr Subramanian said, “If you look at high-frequency indicators like GST payments etc, the second wave has had a far lower impact than the first wave because the restrictions placed were at the state levels; as a result, they were heterogeneous in their intensity; essentials were not impacted; moreover, interstate movement was allowed as a result the economic restrictions were bare minimum. Therefore, economic impact after the second wave is unlikely to be very large; despite the second wave, we expect a double-digit growth in the economy this year which would help in the recovery.”
Throwing light on the projections in case of the third wave, he said, “Third-wave is not likely to be that intense, and even if it is, then the economic impact will not be as large. Not only India, but other countries have also learned to deal with the pandemic.”
On economic reforms and policy changes required, he added, making good suggestions is necessary but never sufficient; the sufficiency comes from the decision-makers listening carefully & mindfully & having the courage to take decisions. A lot of credit goes to the decision-makers who have to bear the positive or negative consequences. In my professional career of close to three decades, I am yet to encounter a better listener than the honourable Prime Minister; he encourages me to speak my mind. Because of those qualities, we have been brave able to make the suggestions that are good for the country.
A lot that has already been done in terms of reforms, Dr. Subramanian mentioned, which needs to be digested by the economy before we can go to the next round of reforms. He also suggested that the next round of economic reforms should focus on legal reforms as that was really the need of the hour.
“US have an alarming debt balance of US$28 trillion as against India’s balance of US$ 570 billion, yet they print currency, and it does not depreciate, and we are so conservative that we don’t print currency, even in these dire times. Why is this concern about credit rating and why this dichotomy,” Ms Chamaria asked Dr Subramanian. Replying to her, Dr Subramanian questioned the role of GDP per capita in credit ratings and said, “Models of sovereign rating agencies are outdated; they are caught in a time warp. India is the fifth-largest economy, and if you look at rating if this fifth-largest economy from Europe or North America, then rating has consistently been AAA; however, when it comes to China or India as fifth-largest economy, the rating slumps to A for China, and for India it is BBB. In the history of sovereign ratings, the fifth-largest economy has never been rated so low as India today is that tells you the time warp that these models are stuck in.”
“If you go down even one notch, a lot of investment is based on ratings being above the investment grade. Even erroneous models like these create real constraints. Another point is that the US has the dollar as a reserve currency, which is considered reliable because it is thought to be so. Despite that US has overplayed its hand and spent like there is no tomorrow. We have been far more careful and spent our fiscal space judiciously; we will benefit from that,” he added.
On asset monetization scheme, he commented, “Privatization leads to benefit for everyone even job creation. Some assets you buy them, and some you lease. Now, through this parallel, we have to understand privatization and asset monetization. Asset monetization is to enable the leasing of assets, which are not being used fully. The concept is not about selling the country’s assets, which stems from lack of understanding of basic economics.”
Upon her interaction with the guest, Ujjwala Singhania inquired about the highest emerging market of cryptocurrency in the Indian financial landscape. The Chief Economic Advisor labeled it as a ‘Zero-sum game’ as no significant impact may be observed on the Indian economy.
Commenting on bringing petroleum products under GST, Dr Subramanian, said, “It makes economic sense to bring it under GST ambit, but it is not the economics as much as politics which plays a bigger role. The decision has to be taken by the GST council that includes all the states; for the states to say that we will give up the right to tax fuel and let the GST Council decide it, that is where it starts mattering.”
To highlight the importance of investment in innovation and R&D, he gave the example of India’s approach to have two vaccines to control pandemic that lead to vaccination of around 60 crore individuals, and said, “If we did not have two vaccines and depended on advance economies then we would not have done 5-6 crore by this time as supply would have been a problem.”
He said that the Central government does more than its share of investing in innovation. “If you take the example of advanced economies, there 70 cents of every dollar is done by the private sector, but in India it is reverse. The reason the private sector does not do invest has to do with myopia in decision making. Companies have to recognize that their entire existence will be questioned if they do not innovate. The startup phenomenon will challenge the incumbent companies unless they focus on innovation to continue where they are right now,” he added.
Supporting the farmer reforms, he said, “A farmer in Bihar would sell paddy in Bihar between Rs 800-1200 per quintal, while a farmer in Punjab would sell it at about Rs 3500 per quintal. You can see that the prices across the states are skewed. So the reforms are putting in contention two sets of stakeholders – one is the vocal minority impacted by these reforms, and the silent majority that will benefit from these reforms. These reforms enable farmers to get the best value of their produce, and not get bullied by the arhatiyas (broker).”