BackNext up: legal, bureaucracy and currency reforms’
In an interview, Sanjeev Sanyal, a member of Prime Minister Narendra Modi’s Economic Advisory Council said maintaining macroeconomic stability and taking care of the bottom of the pyramid are the two key pillars of the government’s economic management strategy
PremiumNEW DELHI : Reforming India’s administrative machinery and the legal system, along with making the rupee a hard currency, widely accepted for global transactions, are top on the government’s next reform agenda, said Sanjeev Sanyal, a member of Prime Minister Narendra Modi’s Economic Advisory Council. In an interview, Sanyal said that maintaining macroeconomic stability and taking care of the bottom of the pyramid are the two key pillars of the government’s economic management strategy. Edited excerpts:
How do you see the Indian economy faring in the coming quarters?
Our GDP (gross domestic product) rowth will be somewhere in the 6.5-7% range. Given the global uncertainties, I would argue this is a very robust growth rate and makes us the fastest-growing major economy. But, let us be clear that the global environment remains very challenging. There are signs that global growth is slowing down. With the slowing of global trade, exports as a growth generator will not be robust. Given the international situation, energy prices should have eased but have gone up again. The automatic stabilization process, through falling energy prices, is not happening. Meanwhile, global liquidity continues to be tightening. Given this scenario, we need to drive carefully.
Domestic momentum will get us close to 7% growth, but, of course, uncertainties remain around El Niño and the monsoon.
Falling exports are a concern. How should we address the situation?
External demand is clearly weakening, and this will be a challenge. However, our response needs to be calibrated. First, we should not unnecessarily force growth beyond 6.5-7% in an environment where global growth and export markets are faltering. If we try to overcompensate with domestic demand, we will achieve an external imbalance (current account deficit) as exports will not be able to keep up with imports. Second, we should focus on the supply side and on compounding GDP over time. Focus on the supply side means making sure our infrastructure gets built up, our regulations are rational, our financial system remains robust, etc. We should not let global cycles distract us from this.
Given that exports are slowing down, which growth engine should we focus on? We are already the most populous nation, and the economy is shifting towards technology-intensive industries where job creation can happen. Have we missed the tide on the demographic dividend?
In my view, a 6.5-7% growth rate under the current circumstances is an acceptable growth rate. External demand cycles should not distract us. The point that I am making is, do not sacrifice macroeconomic stability to force growth in a particular year. It is about compounding, which requires maintaining macroeconomic stability. We need to keep investing in our supply side. Over time, we will get back to 8%-plus growth when global circumstances allow it.
We will be in this demographic dividend phase for about 25 years. We have just entered that phase, and the key is to maintain steady growth till 2047. China’s success was not about high growth in any one or two years, but its ability to sustain it over decades. In contrast, The Asian Crisis stalled many economies, and they never recovered. It is all about compounding. Hence, my emphasis on the importance of macro-stability and financial sustainability.
What kind of reforms is the government looking to aid the growth story?
Let us look at the kinds of reforms we have done so far. In the 1990s, we had liberalization. We were trying to open up sectors from the old licence-permit system. Along the way, it was understood that these liberalized sectors needed to be regulated, so regulatory bodies were created. We grew for some two-odd decades because of the first round of reforms.
Then, in 2014, we began to do a new kind of reform. These were to create the broader frameworks for the functioning of an innovation and entrepreneurship economy. We introduced an inflation-targeting framework for macroeconomic stability. We introduced GST (goods and services tax) to create a common market. We introduced the Insolvency and Bankruptcy Code to allow a framework for creative destruction. The banking system clean-up was done to create a robust financial system. This phase is now getting completed.
We are now looking at process reform. Process reforms are the nuts and bolts of the economy. These are things like expanding the patenting system, decriminalizing legal metrology provisions (weights, measures, labels), simplifying building codes, etc. This is a large area of work. Separately, there are two major areas of reform that will probably take more than 10 years to implement. One is administrative reform, which is about reforming the bureaucracy. And the other major area of reform is the legal system. Here we need a frank public debate.
What is the government’s vision of the rupee as a global currency?
We are trying to systematically internationalize in the hope that the Indian rupee will be a hard currency in a decade’s time. Note that we are not trying to disturb the US dollar’s position as the world’s anchor currency; it will remain the anchor currency for the foreseeable future. There may be one global anchor currency, but there are many hard currencies like the Japanese yen, the British pound, the euro, China’s yuan and so on. The idea is to convert the Indian rupee into a hard currency. That is our limited objective, and we are taking all the systematic steps. We hope that once the Indian rupee has become a hard currency, it will also become a part of the IMF’s SDR (special drawing rights) basket and be held by others as foreign exchange reserves. In turn, this will lower India’s financing costs.
Is there an urgency to loosen monetary policy at this juncture?
The Reserve Bank has responded responsibly to the challenges. We already paused monetary tightening before the others as we had maintained macro stability much better than other countries during the covid-19 shock. Some countries are still tightening as they have overextended themselves. I am confident that RBI is on top of things.
On the manufacturing front, have we missed the bus?
There is a lot of interest from global companies to relocate to India. Many of them already have their service centres in India. So, when we talk about making chips, for example, remember that many of those chips are already designed in India. Similarly, India’s private sector investment is finally gathering some pace. It takes time for these things to be built, but it is happening. Meanwhile, we have to keep investing in our supply side. Make sure our infrastructure is good enough. Our processes are good enough, our bureaucratic red tape is in check. I do not agree with the view that India can keep growing just with services, so we have no choice but to make manufacturing work.
There are demands from at least some sections of the population for more income transfers. What is your opinion on this?
We have always been clear that we need a robust safety net. Ours is not some fuzzy socialist idea of inequality, but about directly addressing absolute poverty. Antyodaya (Anna Yojana) is the idea of helping people at the bottom of the pyramid. This government has done a lot of things for this segment so that they can have a life of dignity as well as contribute to the economy. Special efforts have been made to ensure the availability of toilets, gas, medical facilities, bank accounts and health insurance for the poor. Schemes like the PM Awas Yojana have allowed millions to access shelter. Niti Aayog’s recent report suggests that 135 million people were pulled out of extreme poverty between 2015-16 and 2019-21.
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