Transcript of the full speech of Shri S Gurumurthy, Chairman, VIF on 'State of the Economy: India and the World' delivered at VIF on 15 Nov 2018
S Gurumurthy, Chairman, VIF

Professor Roger Moser, who says India is a second home, was partnering with me in discussions today on employing technology which is already developed. This is a new area of development all over the world. Even before he went into the subject, he said, India must be more self-confident. A person who is a foreigner and who has made India second home, his first observation is that Indians must be more self-confident and India must be more self-confident . The necessity for reiterating what Mr Moser said will be to see that it runs through my presentation, including how we’re handling current problems. Unless we understand where we are from, what are the problems and from where the problems are coming, we’ll not be able to have clear, intellectual solutions for the problems.

India is a country with thousands of years of continuity. No other country has this continuity. Geography is existent, but culture hasn’t been existent. As Swami Vivekananda said, a spider weaves its web where the Caesars ruled. The stones, buildings, pyramids are there but the thoughts, culture, language, literature, what bound the people at that time is no more there. He said if Veda Vyāsa came back to India, he will find traffic landmarks identified even today. That is the kind of change that the country has been able to adapt itself. That is why it's living civilization.

We have seen so many things happening and we have talked about recent things like colonisation, capitalism, socialism and globalisation.

I have been having a helicopter look of shelf life of all these ideas . Colonisation lasted for 200 years. Now it's abused as one of the worst happenings in the history of world. It dominated the world, our minds, it left its imprint. Even today we suffer from hangovers of colonisation. The colonisers feel guilty about colonisation. But the colonised people are not feeling sad that they were colonised. They revel in things which colonisers left. It is paradoxical phenomenon.

Capitalism came and exhausted in 100 years. Then came socialism which became irrelevant in 50 years. Then came globalisation which is irrelevant in 25 years. You can understand the shelf life of ideas which became so fashionable, powerful with an obsessive instinct, it become irrelevant in such a short time. We are gripped by thinking and impact which was foisted on us. It leaves us confronting what and who we are. When globalisation was hitting India like a tsunami, people like us who protested. One retired ex-serviceman said that people like you should be shot dead because you are preventing growth and development of India by opposing globalisation. You can’t differ from mainline thought. That’s the power of modernity. It makes itself so powerful that anyone who deviates from it has no right to live. That is the kind of imposition it brings.

Without this understanding, what is the state of Indian economy and what are its solutions, we are never being able to understand unless we understand how the Indian mind has been shaped the policy making, intellectual, powerful, ruling, media mind over the last 100 years.
In 1853, Karl Marx wrote couple of articles In New York Herald tribune in which he said that India is very peculiar country. At that time no one doubted the unity of India. Even Karl Marx said, India was a nation. It had one way of life, it had one kind of rule, though it had several rulers. But its economics was organised in terms of villages. For 2,000 years, the country’s economy hasn't changed but there is such an intimacy between producer and consumer that there was very little exploitation. The only wrong thing with Indians was that they were worshipping cows and monkeys. That was his objection. He regarded you as semi-barbaric society. So, this society must be demolished, and economic base must collapse, so that you are prepared for revolution. Without revolution, you cannot modernise. Indian society will never modernise because it’s dipped in continuity. He said that the Britisher is doing right by destroying the society. It’s welcome destruction though it is painful, but it is pleasurable also.

Max Weber was the only brain in world who linked philosophy, living style, society and collectivism to economic growth. All moved away from this position. He said that Protestant society moves faster because there is individualism and then there is enterprise and then there is entrepreneurship and then there is economic development. So, modern economic model is aligned with protectionism. And Catholic society will not be able to catch up with such societies and he’s right. America, Canada, New Zealand, England and Australia were all moving fast. If you look at France, part of Germany, Italy, Spain were all lagging. He was right as he spends 25 years studying this phenomenon. This is origin of society and economics as a combined study.

He wrote books on religions of India and China in the 1950s. He said that these two societies will never grow because their religion makes them believe in karma and rebirth and no individualism. So, they will never grow in market and society. With frozen thoughts, they are condemned to live in abject poverty.

If the country must develop, it must give its philosophy, way of life and relationship. In 1951, U.N. prescribed it as a mandate for development of underdeveloped economies. That you must give up philosophy, way of life, otherwise you will be condemned to living in poverty. This is Western anthropological modernity which we internalised in public discourse, policy-making. A one-size-fits-all model not only in economics but also in society, cultures and value system. This is how we were progressing.

We adopted the socialist model. In 1978, when all socialist nations were moving forward, and we weren’t, then somebody asked Dr Rajkrishna that how is it that you are following same socialist policies. He said we can have only Hindu rate of growth because we are condemned to live in poverty with our thoughts. This was the implication.

When this was the discourse going on in 1983, Paul Bairoch, one of the most well-known economic historians brought out a book on mandate given by the GATT about the economic growth of 1750 and 1900 in which he made a disclosure that in 1750, India was number 2 in the economic development map, China was number 1. America and England had a share of only 2 percent in GDP whereas India had 24.5 percent and China 34 percent. This shook the world. Many French historians began saying let us admit we didn’t have such good standard of living as China and India is 15th and 16th century and our prosperity is recently founded.

Then OECD countries constituted a study in which Angus Maddison after 18 years of research came out with his magnum opus—The World Economy: A Millennial Perspective—in which he said for 1,500 years, India was the leading economic engine of the world. In the 16th century, India and China became equal. In 17th century, India overtook China again. In 18th and 19th centuries, both were overtaken by others.

If this research was available, would Karl Marx, Max Weber have written like that? There are studies that show it’s these two great men who influence the Indian academia, education system, public discourse and policymaking. We decided that we cannot generate our ideas. Importing goods can be stopped once you import ideas. This is where Indians were caught in Catch-22 situation of being the largest society. 1/6th of humanity is India. We didn’t develop the faculty of our own thinking and that’s where we as a nation suffer today. Otherwise, you will be saying we are in mess but what is the cause?

Where our thought pattern has been interfered with so powerfully that even to think differently we need to look here and there whether I will be misunderstood if I think differently is the lack of confidence where Indians have fallen. We must recover from it.

You had two opposite parallels of Marxism and capitalism which ruled the world for 25-30 years. Communism collapsed. The global order was seen as only based on free market and liberal democracy. Francis Fukuyama even wrote a book and said that these institutions have established themselves as the final victor as West over the rest. It’s best for the rest to follow the West. This became the Bible of globalisation. We were mandated into globalisation because of our wrong policies which we followed for 25 years in the name of "command economy" which destroyed the Indian enterprise. The Indian enterprise dominated the world. In Greco-Roman literature, in Roman parliament it was discussed that Indian traders are looting the Roman empire. All our gold is disappearing. There are 300 ships floating around the waters carrying goods from India and carrying nothing from here back. This was the kind of economic impact we had over the world. But colonisation, capitalism, communism, globalisation, in succession made us feel that we cannot do anything. We must wait for others to tell us what we should do. That is how we accepted globalisation.

Francis Fukuyama wrote another book in 1994 in which he said the family-based societies are different from individual-based societies. This was book on how Asia was different as China was rising and when Japan, Korea and Taiwan had already risen at that time. He said that individualism-based societies are losing out and family-based societies are rising. The Economist magazine commented that he earlier spoke about the end of history and he is now talking about the end of economics. If you write a book on the success of family-based societies in economics, then you are talking about the end of economics. This is where the globalisation began as the all-pervasive and the dominant idea.

India, if it has to develop, will have to only go through globalisation that it cannot make a local variation from it. This was the thought against which we fought from the last 25 years.

President Trump came in power in America. Many of us have not followed very minutely on what was the discourse in America and the world when Trump was contesting the elections and he became a candidate. Then Lawrence Summers, economic advisor to Clinton, said that Trump will cause a market crash and throw the world into recession. The election was going to take place in November-December and he said it in June. Citigroup said that Trump victory would mean global recession and the first gift could be another financial crisis. Washington Post said that Trump would destroy the world economy. Former Chief of IMF protracted recession for 18 months from which the world cannot recover. After the election, there was prognosis that Trump may win. Paul Krugman, a Nobel laureate, said that there would probably be a global recession with no end in sight. After Trump won, the U.K.-based Independent magazine wrote, "Trump's first gift to the world-another catastrophic financial crisis."

After Trump came to power, the dollar index rose by 5.6 percent in one month, the highest in 14 years. It shook America and the world. On the third day of his power, he terminated the Trans-Pacific Partnership of 12 nations. On the seventh day, he said these people should not send refugees to America. In June, Trump withdrew from the climate accord. He said I have to make America strong. The country which drove the very process of globalisation said that no one’s interest is important, the collective interest of all is important. That country said my interest is important. It is Americanism which is important. We have to factor it in if we want to decide what we want to do. He took on traditional allies of America. He said Russia should be brought back in G8, which was removed as it occupied Crimea.

Trump was working with a plan and was correcting the distortions for America. See the results he produced–The dollar rose by 5.6 percent. The stocks rose by 38 percent in 22 months, a historic rate of return for America by any standards. Tax savers became rich because of it. Trump promised a 3.5 percent GDP growth when the whole world was expecting that he would destroy the American and global economy.

Trump achieved a growth of 3.1 percent in the second and third quarter after he came to power. He achieved a GDP growth of 4.2 percent in the second quarter of 2018 and 3.5 percent in the third quarter.

Trump stopped the experts from commenting on his policies. He is creating 223,000 jobs per month. The unemployment rate has come down to 3.8 percent, which is 18-year low. The entire expertise of the world failed on the policymaking by Trump.

The entire American media converge on a particular day to write the same editorial in all newspapers. I have never seen newspapers behaving in a converged manner against an individual.

India also joined the chorus. Instead of discussing how Trump's initiatives for America and its impact on India and the world, we are conducting discussions if Trump is right in America or not. This is completely misdirected discourse of a slavish nation. When Moser said that Indians have to grow self-confidence, we should know how we should participate in this discourse. We never know that we can differ from other American newspapers as we don’t have self-confidence. Trump said that they are wrong. Thus he established that a determined leader can make the economic thinkers wrong.

There are two situations where the economists and economics have let down the world. In 2008, all the economists were saying that everything is good. Former Federal Reserve Chair Alan Greenspan wrote a book in 2007 that everything is hunky dory. After that, there was a catastrophic collapse. The Economist magazine wrote a cover story the economic theory has melted away and that the arrogant economic expert has been beaten to shyness and shame. The same thing was repeated when all the experts said the Trump will fail. However, Trump lifted America and even the global economy is doing well.

Trump hit China in a big way. No American President stood against China except Trump. China retaliated saying that they have $1.8 trillion in U.S. Treasuries. Trump said, "Sell it. Who are you going to sell it to?" If you invest in a wrong company, it is not that the company benefits, but the country is also in trouble. America has sold the securities to the world to the extent of $11 trillion. Everyone is saddled with securities, including Japan. India has $150 billion invested in dollars.

Dollarisation of the world is something where the world has to think but we are not thinking.

How to get out of this? We have already started doing it. However, there is no discourse. When the government is doing it, then there is not a single editorial talking about it. When petrol price goes up, the dollar value depreciates which will partly compensate for the oil prices. But this has stopped from 2015. This is because America allowed American oil companies to export oil. They began producing enough oil that their imports came down by 23 percent in 2016. They began exporting oil. There is no trouble for America from the rise in crude prices. This has a complete shift from the 1950s. When America feared the rise in oil prices, it always feared the fall in dollar value. Now, the negative co-relation between dollar and oil has become positive co-relation between two. In the last three years, not only crude prices going up but also dollar prices, which is a double-whammy for oil importing countries which are dollarised in their economy. This has enabled Trump to take strong action against Iran. America is one of the top three oil producer and the largest oil producer this year. Trump is not bothered about the oil prices because of the shift in co-relation between oil and dollar, a subject which is ignored in Indian discourse. Our idea is how to find fault with the government. Our idea is politics.

A 30-year settled relationship between China and America has been broken and reversed and China is running for cover. A country which was feared without China, that’s how they will maintain price levels and standard of living. It had become the factory for America and the world. If they produced 100 units, they consumed only 46 units and exported the balance. They were over-dependent on globalisation and never expected Trump to come.

There is no functioning universal economics theory today. America has been incurring Current Account Deficits from 1976 till today. They have incurred $11 trillion CAD. Any other country incurring CAD, the economic theory says, the value of the currency should go down, so the trend will reverse. They will be exporting rather than importing. Instead of dollar value going down during the period, it appreciated 330 percent, completely giving a lie to the theory of economics.

America printed $4.5 trillion between 2008 and 2014. They issued digital currency and saved the local economy, funded the global economy and no one said U.S. Fed was wrong in doing it. But if any other country had done it, they would say it will die of inflation. We have given up the right to print our own currency by FRBM law. The government of India has given up the right to print the Indian rupee.

The Indian rupee gets expanded only when dollar comes in India and when RBI acquires the dollar, it prints Indian rupees and gives it to the banking system. There is no other way the Indian rupee gets generated today. If there is dollar inflow, Indian rupee supply will increase. If $30 billion go out of India, then Indian rupee supply will be withdrawn. Has anyone evaluated economic consequences of it?

The government of India cannot borrow from RBI by firing its securities. The Centre should not borrow excessively is understandable but it should not borrow is not understandable. We pleaded to the Centre, after which they constituted a committee in 2015 to amend the FRBM law which was passed in 2002 when the world thought that there should be no printing of currencies and that the market will take care of the whole thing. It has become an outdated economics because U.S. itself has printed $4.5 trillion.

Japan began printing $40 billion every month from October 2015. Today they have increased the size of printing to $70 billion per month. Have we ever discussed this in the context of India? It is not necessary that if they print we should print. But if we need it, can we print today? There is liquidity problem. Can the government of India say I will give you Rs 100,000 crore worth of government securities, you give me the cash. The government of India cannot do it because it has passed a law giving up that power. Our economists will say that the printing of currency is wrong. You cannot give it to politicians and it should be with RBI. The central bank will only print the currency only when the dollar comes in. Can you have national economics based on the inflow of foreign exchange? These are the issues which will decide the state of the economy in India and the solutions which we need to find.

Trump is clear that he is no more for globalism but Americanism. Trump has also decided that US will not print the dollar anymore, we will withdraw the dollar from circulation. US began withdrawing $40 billion from circulation every month from October 2018. On the one hand the dollar is needed more and more and America is withdrawing dollar from circulation so that its value goes up. America is happy with rise in dollar value. However, the Indian economists are thinking that the lower rupee value will benefit exporters. The dollar value was 45 and now it is 70. The exports have not picked up with fall in dollar value, but the economy is continued with lower rupee value as it is a philosophy for us. The imports into America will become cheaper as the dollar appreciates.

Trump has a solution for it: levying import duty so that the goods will not be cheap. If things go according to his expectations, he will impose 25 percent duties from January on $500 billion imports of China. No one knows what will happen to China after that. China has established factories for America.

The foundation of globalisation has been shaken. Multilateralism has been delegitimised. If Trump does it, every country will do it. Trump has unilaterally imposed duties on aluminium, steel imports from EU and Canada. You may find fault with Trump, but he has given growth to America. Whether he is there or not after 2020, Americans can never give up Trump's policies.

Any president will find it difficult not to follow the policy because if consequences are difficult, he will have to take responsibility, so the Trump phenomenon will last beyond Trump. Do you see Indians discussing these subjects? There is a complete failure of economic intellectualism in India.

There are two kinds of polarised economics. America withdrawing dollar and Japan printing yen. America is raising interest rates, while Japan is looking for negative interest rates. People are forced to spend but they are not spending. In a family-based society, people don’t spend as the government wants to spend. In America, people spend. These are culturally different situations. So, we have world monetary order in which one country is printing currencies and distributing free. They are investing 5 lakh crore in our high-speed railway. 0.1 percent interest for the next 50 years because they print the money. On the other hand, you have America withdrawing the dollar, raising interest rates and IMF and the World Bank can’t do anything. They are onlookers today. They are only rushing to help countries who are in distress. They have become a distress lending institution and no more world’s monetary authority.

IMF was constituted to find a common currency for the world. It failed in its main objective. Dollar became the main currency. First, it was backed by gold and then to have common currency to trade between anybody. So, dollar became the necessity and that become strength of the dollar. US, which held the responsibility for the world, is withdrawing from that central position. We need to have an extensive discussion on how it will impact the world and India.

The phoney money decides the value of money. The phoney money has brought about the downfall in the world economy in 2005. The real money in 2010 was $6 trillion, while the phoney money was $600 trillion. This is money built on money which had no relevance to the real economy. The world GDP is $90 trillion. The phoney money is $900 trillion. This is generated by the financial system which will invest in a country and withdraw the money. This is not real money, but it will decide the fate of nations.

Now, we have cryptocurrencies. They are private currencies. There are about 100 private currencies in Japan. You can create it and circulate among yourselves. These private currencies are based on actual trade. There is a group of people admitted into a club. They began investing, trading, which is going through a supercomputer. The demand and supply based on the actual transaction will decide the price. Nobody has control on it. There is an attempt to get it regularised in India.

Geopolitics has never been so complex as it is today. Trump is fighting with his own trusted friends. He is calling Canadian Prime Minister a liar. There is an instability caused in the Western block. U.S. and Russia are friends in one place and they are fighting in another place. Europe says it will have its own army, but they will need NATO also. This kind of a situation have never been witnessed after the second world war.

Globalisation is now a matter of past, and WTO is in ICU. Nobody even talks about it. These were all obsessions 20 years back. The shelf life of all these newly-created institutions, which are fashionable at a particular time, lose relevance because they are not founded on firm foundations of collective behaviour. You can’t have a ruling elite saying that we will have globalisation from today onward without the people wanting globalisation. Trump has found out that American people don’t want globalisation.

Geopolitically-influenced global economics will be the future. The 2+2 model, in which VIF is engaged in a big way, is not only about economics but also about security. It will not only be the finance secreatry, the defence secretary will also be in the discussions. We are not going to build economic alliances, we are going to build security, civilisational, social, political alliances and more. This was unheard of 5-10 years back. A new model of international relations is developing. We are only talking about NPA, recapitalisation of banks.

There is no towering thinking mind. Everybody is looking through that particular window, but the nation doesn’t consist of 10 windows but one building. We need to have a very comprehensive thinking model.

There was a time when Japan used to build roads which they will not use. They build only to give employment to people. That was the economics that Japan followed. Then China followed expecting the airports and eight-lane roads to be used in future. But there is no future.

There is a chaotic situation in monetary, trade, economic and political relationship in the world. India is too big a country to be pushed over today. There is some awakening in India. We have gained strength, militarily strong, have atomic power. The Indian passport has become a respectable document today. The world recognises the worth of India.

In an unstable world, how do we handle our situation? I will take you to 1999-2004, 2004-2014 and 2015 onwards. Unless understanding this, the state of economics cannot be understood, and we cannot grasp the solutions for it. I will give you figures of 1999 to 2004 and 2004 to 2010 which is supposed to be the best year of India. 9.8 percent GDP growth. Foreign exchange reserves spiked from $140 billion to $340 billion. This is supposed to be the golden period of the Indian economy.

In 1999-2004, the GDP growth was 5.4 percent. In 2004-10, it was 9.8 percent. Prices were at 4.8 percent in 1999 and 6.8 percent in the next six years. Stock prices rose by 32 percent in 1999-2004, then 311 percent in the next six years. Gold prices 38 percent in the first five years, 320 percent in the next six years. Land prices rose 21 percent in the first five years, 221 percent in the next six years. Jobs generated were 60 million in the first five years and 2.7 million in the next six years.

This is the period of destruction of the Indian economy. In this period, the foreign exchange spiked from $140 billion to $310 billion and transformed into rupees. The banks were saddled with money. YV Reddy (then RBI governor) said don’t allow this money to come in because you will not know how to use it. We want that to be taxed, but the finance minister said the whole world wants to put money in India. The money came in the stock market, transformed in rupees, became bank deposits. If the bank has deposits, it has to lend. But there were no borrowers.

The government then brought down the import duty of capital goods to zero and made the banks lend. As a result, bank deposits went to 20 percent from 12 percent. The credit went up to 27 percent from 15 percent. We imported capital goods which we did not need. All this money went to China. We had a trade deficit of $125 billion with China in 14 years, which is equal to three times China’s defence expenditure and five times India’s defence expenditure. This is because we allowed the money to come in which we did not need, it got converted into rupees, we did not know how to use it, banks were asked to lend it, for which customs duties were brought down and that money is NPA today.

I challenge anybody to deny this fact. Raghuram Rajan admitted the fact that excessive lending took place at that time which become bad debt. The RBI at that time headed by the topmost macro-economist, YV Reddy, he was called by U.S. Fed and he addressed all the governors. U.S. Fed had said that if YV Reddy was the U.S. Fed Chair, the world economic meltdown could not have taken place. He advised stopping this money from coming in. but our government didn’t follow. The money that came in became NPA today, and this government began grappling with it.

During this period, the revenue deficit went up by Rs 16 lakh crore in five years and tax cuts were Rs 3 lakh crore per year. So, this money was given to spend the foreign exchange which we had received. During the 10-year UPA period, oil imports were $515 billion and capital goods imports were $585 billion. In NDA, capital goods imports were $10 billion. For the first time, only in NDA period for two years we have current account surplus of $25 billion. That is why India was seen as rising power. Everything was reversed as we were getting free flow of money. The phoney money unbacked by production and investments turned the economy into NPAs and saddled it on this government. The only fault of this government is it did not come out with a white paper saying this is what happened.

Asset prices rose because of high denomination currencies. In just 18 months prior to demonetisation, 500-rupee and 1000-rupee notes was Rs 4.8 lakh crore, which funded gold and real estate prices. What had taken place in 2008 in America due to subprime lending could have happened due to high denomination currency in India.

Indian economy could have collapsed if demonetisation hadn't happened. It was a corrective. The people should be congratulated as they stood in a queue to collect money as they put faith in the government that they did the right thing. Nobody welcomed this and said that there will be riots. Even the Supreme Court said there will be riots. So many people died of heart attack and still people weren't rioting.

Then came the GST. Two powerful reforms–one is corrective and the other is reformative. I don’t think any other government would have taken this measure. There is no reasoned appraisal of government actions. You can find faults. Opposition parties can do it as they can say wrong even when there is nothing. But what about the media and the intellectuals? They are doing what the American media did when Trump was coming to power.

We need to understand that we are a bank-driven economy and not a market-driven economy. In America, 75 percent of the money comes from the stock market. In India, only 3 percent of savings goes into the stock market. We are not the only fools. Japanese invest 9 percent of savings in stocks. 51 percent of Japanese savings are held in bank deposits. The depositor has to give money to the bank to keep the money. Still 51 percent of savings of the Japanese are invested in bank deposits.

The most modern instruments are traded in the Japanese stock market. But mostly foreigners trade in them. This is the character of a family-based society. Therefore, in India, banks are the lifeline. But the Indian banking policies are based on the American model in which stock market is the prime mover and bank is the subordinate player. In India, the bank is the main player. So, if you restrict the banks then you are restricting the economy and the flow of funds into the economy.

There are certain norms prescribed for banks that you need to have so much capital. The Basel institution which created this model laid down rules that applied for commercial banks and international banks, but not for banks that are not internationally active. We do all kinds of activities, but still, the same Basel norms are imposed on all banks.

In Japan, there are internationally active banks and domestic banks. For internationally active banks, the norm is 8 percent and for domestic banks, it is 4 percent. In India, for both, it is 9 percent. I don’t know where this 9 percent was caught up by the regulator. We are doing more than what the Basel wants and so the banks have less money to lend. These are all the things which don’t have discourse in India. There are only four internationally active banks in India. All others are domestic banks. They need not have 8 percent capital. But they are also forced to have 9 percent capital because some people think that IMF feels happy if we have 9 percent capital. We create problems for ourselves where they do not exist and you are praised for it all over the world. The same thought guides us and we are not independent.

A saint in Kanchipuram, who guided my life, issued a statement on 15th August 1947 and said, “We have become free, now we can become independent.” We do not have original thinking even today.

This government has taken far-reaching original steps by $75 billion swap with Japan. The dollar-rupee relationship is working against rupee for the last several decades. Now, we are moving towards yen. We are having $147 billion in foreign exchange in terms of dollars. Government is probably well-advised in thinking that we should move more towards Yen because it has a natural hedge against dollar and is running a current account surplus with America and has $1 trillion investment in American securities.

Therefore, our financial, investment, trade partner must be Japan. But our mind is hooked to America. America is not wrong, but it is not appropriate for us. We should think of an alternative umbrella. Even if a solution is available, your mind is blocking it. America is necessary for many geopolitical purposes, but it is not necessary that we should have this kind of dollarised integration with them. Even America will not mind it. But you are not a free thinker.

We have been following the wrong import policy of having capital goods imports exceeding oil imports. We need to go in for heavy import restriction. We have to cut down the CAD, trade deficit in the next one year otherwise we will continue to accentuate this problem on which all the institutions will have to work together. If an import restriction is made, media will say India is moving away from free trade. Your newspapers have nothing to do with reality. They do not understand any of the implications of what is happening in the world. The FRBM law needs to be amended. We have to align the NPA rules to Basel norms and no more. This should be looked upon as a bank-driven economy.

India lacks credit for MSME sector today. Without understanding MSME sector, you will not understand the Indian economy. We see stock markets and say India is at top of the world. All the listed companies put together contribute only 5 percent of India’s GDP. The entire corporate sector listed and unlisted put together constitute 15 percent of India’s GDP. It is MSME sector which contributes 50 percent of India’s GDP and 90 percent of India’s employment.

Economic census 2014 says that the number of people employed in the non-formal enterprises is 128 million whereas the entire corporate sector, including the government, employs only 12.8 million employees. It is the MSME sector which was hit by both demonetisation as well as GST. It is this sector which has been robbed of credit. In any other country, this would have collapsed. They are surviving because of community support. They cannot survive for long. When the government said this sector should be funded, the media said the government is now working against the independence of the Reserve Bank.
So, a sector which is driving India and constitutes 70 percent of India’s exports, 90 percent of employment, 50 percent of GDP of India, is starved of money. Once the money is released, the growth rate will pick up along with the consumption, investment and savings. It will not be the top-down economy as the stock market coming and flooding the economy which it did between 2004 and 2010.

A new thinking is needed. An India-centric thinking is needed. We should not be ideological in thinking. We have to be rooted to the ground. We should ensure that a proper discourse takes place in Delhi because this is where action is.

Published in Bloomberg Quint on 17 November 2018.

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