No place as fascinating, interesting as India on development journey: CEA

He talks about issues ranging from the United States election results and growth in gross domestic product to agriculture and his experience of having a ringside view of the Indian economy

Chief Economic Advisor V Anantha Nageswaran, in a fireside chat at the BFSI summit with Tamal Bandopadhyay, talks about issues ranging from the United States (US) election results and growth in gross domestic product (GDP) to agriculture and his experience of having a ringside view of the Indian economy. Edited excerpts:

 

After the US election results, we have seen what has happened to the rupee. The dollar index is going up. How do you see the impact of the results on the financial sector?

 

It is too early to attribute what is happening entirely to the results. Some of these trends were in motion. We should not lay too much emphasis on the market reaction. I don’t see any reason to be overly concerned, whether it is foreign direct investment or the currency movement. 

 

 

Your FY25 GDP growth projection -- between 6.5 and 7 per cent -- has been conservative. The Reserve Bank of India (RBI) governor seems more bullish than you on growth, sticking to the 7.2 per cent projection. Are you thinking of increasing your growth estimate?

 

We are comfortable with this current range as our possible projection for this financial year. I would be happy if the RBI estimate turns out to be more accurate than ours. In the first five months of the year, capital expenditure was lower than in the previous year. I’m confident that in the seven months of the financial year remaining (counting October) it will catch up briskly. It may end up being slightly higher than capex last financial year.

 

There haven’t been many takers of your hypothesis of keeping food out of the inflation basket when the RBI takes a call on interest rates. Have you changed your mind?

 

The central bank should not be burdened with a target for one particular sizable component of inflation that is not directly in its control. It is not my point to say that we should be unconcerned about food inflation. But there are other instruments to deal with it. There were not too many takers for the hypothesis, and just as well. Reversing a framework that has been set in place may have its own cost. When food expenditure becomes somewhat an insignificant portion of our monthly household budgets, it becomes probably that much easier to talk about changes.

 

Bankers are seeing deposit growth as a challenge. How do you see financialisation and savers turning investors?

 

If savers turn investors, it is a good development. Speculation is necessary, but all within moderation. What we don’t want is savers turning just speculators. It is not in their own interests to excessively dedicate their savings to futures and options or extremely short horizons. Eventually, that money will find its way back to the banking system. So that is not a problem. Financialisation is a term that became prominent even in global finance when most of the economic activity was dictated by what happens in the financial sector. It will be even more detrimental to developing countries if real economic outcomes are outpaced by financial-sector outcomes or market valuations.

 

Do you think it is time to take a relook at import duties?

 

India’s import duties are nowhere near where they were 20-30 years ago. I agree with you that if we have to be globally competitive and want to be an exporting player as well, there is a case for import duties to gradually come down in several areas.

 

You have spoken about how we need to follow the Brazil example, where the youths are participating in agriculture and farming. How do you see agriculture as a growth engine?

 

In the second decade, our efforts to grow manufacturing were stymied by the fact that companies and the banking system had balance sheet issues. But now with improvements in physical infrastructure and the ease of doing business, and firms beginning to undertake capital formation, the manufacturing share of GDP should rise. The services sector will face competition from artificial intelligence. It is possible to have agriculture still contribute substantially to economic growth provided we can use value-added activities, food processing, and cold chain storage. Policies, both at Union and state levels, have to encourage the youths to participate in agriculture.

 

Rural India, however, is looking for jobs at a time you are saying go back to agriculture.

 

We need all the three sectors -- primary, secondary and tertiary -- to be significant contributors to economic growth. To move forward as a country of 1.4 billion we cannot be exclusive. States can choose specific sectors, but collectively as a country, we cannot. We have to be sector-agnostic.

 

There are reports of rural demand lifting growth in fast-moving consumer goods (FMCG). Banks often raise concern about rural indebtedness. Do you think this concern is valid or is growth coming back?

 

In all categories of automobile sales, rural India has seen growth in the first six months this financial year. And that is why I spoke of the importance of ensuring that hiring and compensation practices are growing more in line with profitability growth.

 

How are you seeing the progress of the “Make in India” initiative?

 

We are seeing a revival in investment, particularly in machinery and equipment, which is critical. Factories that have more than 100 workers have seen employment grow at a faster rate than those that have fewer than 100 workers.

 

There is evidence of progress in formalisation. That augurs well for us to be able to realise our “Make in India” goals.

 

Moving away from typical public-private partnership you have proposed Centre-state and private-sector partnership. Can you elaborate? 

 

The Union government focuses on financial-sector reforms, taxation, creating nationwide infrastructure, scale, and efficiencies, but when it comes to land, labour, education, electricity and ease of doing business at ground level, much action has to take place in states.

 

And when it comes to the private sector, it is important to ensure trust between capital and labour, ensure the quality of products, research and development investment and partnership with academia when it comes to skilling education. Each has its role to play in making us a developed nation by 2047. 

 

This will be your last Economic Survey. What are the new things you did not know about the Indian economy before joining North Block?

 

It was not as though I was a stranger suddenly parachuted into this role in North Block. That said, it is one thing to vicariously appreciate the progress that is happening in this country but it is another to be observing it first-hand and being part of it. I don’t think there is any place that is as fascinating and interesting as India is on its development journey. The energy that you observe being here is different from what one can perceive being outside. So in that sense, it has been an amazing learning experience in the past almost three years.