Decoding Bharat's Economy: GDP growth rate, inflation and 'selective' wealth creators in India

The numbers of course, are are good. The question is what lies behind the numbers. Nobody can accuse the Modi government of not bringing in economic reforms. You can accuse and say this reform was not good. Demonetization India goes to poll on April 19. The Bharatiya Janata Party and the Prime Minister Narendra Modi has its eyes set on coming back to power for the third consecutive time at the Centre. While the opposition led by the India bloc is looking to break its streak, the economic performance and the welfare schemes of a country remain a major decisive factor for any citizen when they enter the voting booths. To declutter the numbers and shed light on the various aspects, it shows, The Economic Times spoke to two prominent economists, Surjit Bhalla, a policy veteran with the experience of having worked with Prime Minister Narendra Modi’s Economic Advisory Council and former Reserve Bank of India governor Raghuram Rajan. It is about the most appropriate way to describe the Indian economy post 22 when or post 2021 when we had the COVID experience and we can go into as to when even prior to that we had a reasonably strong economy except in 2018 and 19. So what happened in 2018 and 19, we had the highest real interest rates ever observed in India and that caused the growth rate to go down to below 4% if you recall in 20/19/20. So and obviously our fiscal year ends in in March. So this included a very little effect of the drawdown. The big effect was the unnecessarily, in my view, very, very tight monetary policy followed by the RBI. So if you take out those two years of that one year 20/19/20 with reasonably solid growth from 20/15/16 onwards and then from 20/22/23 onwards, it’s really or 2122 onwards, it’s really a solid economy in terms of GDP growth. Now let’s look at inflation, the other twin side of Goldilocks. So Goldilocks had one hat which was growth and the other hat was inflation. And inflation has been extremely well behaved, especially given what’s happened in the rest of the world. Now here there is a very interesting divergent between inflation in developing countries and inflation in the advanced countries post COVID. Never before has it been the case that the inflation in developing countries was lower than the inflation in the advanced economies. Now the advanced economies were hit by a double whammy one the the very, very expansionary policy during COVID and 2nd the war in Ukraine, which has dragged on for a long time. So that has made it difficult for the Western economies to reduce inflation, though it has come down quite considerably in India. On the other hand, it’s been very well managed. The macro economy, we didn’t pump up the economy like they did in the US So the fiscal deficits were very well controlled and inflation also was well under control except for that one year that happened. So you know, when was the last time, let me ask you, we are going somewhere close to certainly above 7 1/2% and it might indeed be and we can discuss as to why the pointers to GDP growth in India Today are upwards of 8% on a long term basis. Not I’m not talking 2324, I’m talking over the next 4-5 years that I would be quite surprised if GDP growth is less than 8% and this is mind you assuming that the world we don’t have a World War, we don’t have exogenous shocks. So yes in conclusion it’s been a remarkable recovery for India post COVID and indeed all the indicators suggest it’s been extremely remarkable. The numbers of course are are good. The question is what lies behind the numbers and is this, you know, sustainable at 7? Actually numbers say 8 1/2. Is that a sustainable picture? And and I think that in order to get a good sense of how all this is going, you want to ask what is a sustainable rate of growth? To some extent, the GDP growth numbers are flattering. Flattering because the deflator we use is very low. The GDP deflator is used to subtract from the nominal GDP estimates to get the real GDP, and today it’s about 1.5. So even with nominal GDP growth at 9%, you get pretty high sort of real GDP growth. But of course the question is what is true inflation? Is it 1.5 or is it more like 4 or five and and once you subtract the true measure of inflation, you get more like 6% five to 6% growth and that would be the what would emerge over time as this GDP deflator sort of normalizes. We already see oil prices going up, the deflator will go up. The broader question is, is this the, is this growth providing enough jobs? And there I think the question is a lot more, the answer has to be a lot more nuanced. It is providing more jobs in construction, which is a success of the government. The government has engaged in tremendous amounts of infrastructure construction and that has also energized private development of houses and so on. But if you look at employment in other sectors, one of the biggest concerns is that employment in agriculture is going up, according to the PLFS, while employment in manufacturing hasn’t picked up, despite all the energy that the government devotes to manufacturing, and employment has come down. So these are big sources of worry that the only jobs we’re going to be creating are construction, but not in the sectors that we would want to develop, especially as we go forward. You can see this in, you know, the kind of sort of attraction that jobs have huge numbers of people applying for government jobs because private sector jobs are not being created. I think there’s a lot more continuity than people think. So I I don’t subscribe to the white paper that the government put out, which sort of try to to say that everything was bad ten years ago and everything is good now, or the reverse, which is, you know, some of the problems we have today are long standing and have emerged over over the years. For example, you know, very few governments have paid attention in a big way to improving the quality of our education. I mean they’ve all sort of said they are and you know the Vajpayee government did a for example, you know, service Shiksha avian was was I think initiated in that time. That was a good move. But you know we we are that’s an area where we are underperforming and and no single government deserves the blame. But I think on there is a continuity otherwise for example think of digital stack started in the UPA but expanded under NDA. So I think that’s one should take all that into account. Similarly the GST was proposed during UPA opposed by many of the politicians who supported today under the NDA and then brought in under the NDA. I I think that in the longer run GST will serve India well. So I I think you need to think about this as continuity rather than an abrupt change. That said, I think where we need more action is absolutely in the area of preparing our people for the 21st century and the changes that are to come. And and that means health care, that means education, that means killing. Without a focus on all those. We certainly are not prepared for the 21st century and it’ll be difficult for us to come a devil up name. Ultimately, I think where this government has succeeded is in infrastructure build out where it has not isn’t in creating enough good jobs. Now we come to UPA one, what you’re calling UPA one 2004 onwards and UPA one started and disinvestment started under Vajpayee. UPA one came in on the very first day, I think it was, Badhan said. Disinvestment of bharmajai. So the point is that the I am and I’m happy to discuss with you or anybody else what was namely one economic major economic reform that happened during 2004 to 2014. Matter of fact, I can, I can mention several negative reforms which I will go to. But you know there were initiatives taken like you know, we should have direct tax reform, absolutely same thing with this government we should have and I hopefully we will finally have direct tax reform. Aadhaar was brought in by UPA two and got off to a slow start where the opposition itself, Modi and the BJP were criticizing Adha and many people within the Congress were also criticizing Adha. You know, Amali Independence, Shelly Jayegi, Amayi Identity Chali Jayegi. So basically while it was a very, very good initiative, nothing happened. OK, so I am stressed to find out as to what were the reforms At the same time, global growth between 2004 to 2013 was the highest the world has seen. OK, Kabir meaning such a high average growth rate. So like you know rising tide will lift all boats. So we already had got a momentum under Vajpayee of basically the foundations for economic growth and they were carried through in 2004 to 13 without any help of the forms. But basically there was impetus and it continued. So we grew well, but not very well in comparison to the rest of the world. So if you look at the excess growth as to how did India grow 2004 to 13, how did the rest of the world grow that, That gap between 2413 and 2014 to 24 is much higher in 2014 to 24. So there is what happened in UPA, one and two. Now we’ll come to NDA one and two. Now there were nobody can accuse the Modi government of not bringing in economic reforms. You can accuse and say this reform was not good. Demonetization for example. Now, demonetization I’ve written, I think paved the way for your increase in tax revenues. And I remember writing at that time that one reason for demonetization was that it will improve the transparency and improve the tax compliance. For the last 75 years, certain wealth creators were favored by the government, OK, and certain wealth creators not OK. So if you are only software was not favoured by the government, but everything else forever and every country. That’s industrial policy, OK? And that’s markets. So the question we should be asking is, are we allowing inefficiency to flourish? That’s not good. Now if and are we allowing monopolies to continue? Now, monopoly is very difficult today in this global world. OK, you’ll have a Chinese, you’ll have American, you’ll have Indian. So was Amana Chalaga. But, you know, I find that the world has changed enormously, yet our debates remain the same. Inequality. This guy is being favored unless you show me that this is, you know, when did it not happen? Which country does it not happen? Korea. Chebos, you know about Chebol. They control the government and the businesses and the country flourish and the people flourish and they flourish. So I think we should look at the proof on the ground that inequality, you know, just like the poor will always be with us, the rich will always be with us. OK, you’re not going to. There are some people who tried to control the world and their population, and there are two of them, whole port and Masito. Now they try to control everything. Yeah, they you could move there. They taxed you. And if you got educated, you were told to go plow the field. Cao. So maybe 10 people in India want that fine free country. Now you can want anything you want, but for policy that we feel more I have no problem with wealth creation if it is free and fair. Having privileged wealth creation is a problem because that privilege comes at the expense of the rest. So I am against, you know, a few gathering all the benefits because they have acts to government support, while the rest are sort of foundering without that. And so, as far as possible, it seems to me the government should create a level playing field when no entrepreneur is privileged and, you know, outsiders don’t see it as a necessity to get the help of specific entrepreneurs to ensure they have the right government policies. I think that creates a very bad image globally.