How has the perception of India changed now, let us say, versus 10 years ago?
Sanjeev Sanyal: I think there is a huge change. There is no comparison frankly, because earlier India was seen as a peripheral emerging market where people could patronisingly talk about India’s development, poverty removal and so on, whereas now India is seen as integral to the world economy. We are seen as an emerging global power, which is already the world’s fifth largest economy. Within 24 odd months, we will also be the world’s third largest economy and we are contributing a significant proportion now of world growth.
So, we are not the charity case that everybody has to tag along; rather, we are the driving force of the world economy. I think that change in our place in the world is very, very evident.We have been growing at 7-8% for the last few years now, but many say that we do not have the right ingredients with respect to infrastructure, electricity, etc, to grow at this pace on a sustainable basis. What is your answer to that?
Sanjeev Sanyal: See, sustaining high periods of growth is something that has to be earned, but there is nothing predetermined about it. It is a question of how much effort are we putting into sustaining it. Just look around you – the huge amount of highways we are building, the upgrades of the airports, the railways, the ports, and yes, even our power production capabilities.
We are still building conventional power plants, but we are also building nuclear power plants and, of course, massive investments going into green hydrogen and other things. So, it is a multi-year effort that has to be sustained and at every stage you have to keep building on it. So, we understand the difficulty of it, but we are doing it. And even if we slip up here and there, the sheer effort being put in will keep going on. But to that extent, how is Modi 3.0 going to be different from 2.0, especially in the context that BJP returned to power as part of a coalition?
Sanjeev Sanyal: There will be absolute policy continuity. You can see that in the choice of the cabinet ministers and various other things. I think the fact that Prime Minister Modi is back for the third term is an endorsement of the policies he has done over the last decade. So, what are the bricks on which this is built? First of all, sustain high-level growth. We are unapologetic supply-siders. We build infrastructure. We believe in making it easier for businesses to innovate and to expand their businesses. Wherever we have slipped up, tell us, and we will make changes. So, we are very much into investing and building up the productive capability of our country.
Second, we believe in macroeconomic stability. Over the last decade, inflation has been kept well-reined in the 2-6% range. Our foreign exchange reserves are now more than our external debt. In fact, we are a small net lender to the world. We can see that in terms of the way the banks were cleaned up. So, from a macro-stability perspective also, we are no-nonsense. Finally, we believe in directly dealing with absolute poverty. So, rather than get involved in corrosive debates about inequality, which is jamming up policies in the west, we are directly dealing with absolute poverty, whether it is in terms of using direct benefit transfers, building houses under Prime Minister’s Awas Yojana or whether it is Nal Se Jal and so on, so direct interventions that help the poor. So, the combination of these three things, these principles remain the same.
Now, obviously, specific policies will evolve as time passes, our resources change and so on and so forth. But of course, as our tax to GDP ratio is clearly rising, the resources available to us is also growing and Indian companies, Indian banks, and so on, are on a different scale of capability than they were just five-six years ago. Even as recently as the pre-Covid period, our banks and corporates and infrastructure capabilities were much lower than what they are today. So, we will keep pushing on along this path.
But the feedback from the general elections and the fact that it failed to achieve the char so paar (over 400 seats) kind of slogan that BJP had come out with. Are you hearing this in the context of the rural distress which is there, the unemployment which is there? How are you going to take it forward from here on then?
Sanjeev Sanyal: The most important thing about job creation is to push on with growth. In the medium to long term, there is no such thing as jobless growth and there is no such thing as job growth without actual economic growth. So, we have to push along this path. It is creating jobs.
I keep pointing out to people, there are no such things as poor people. They are poor places. What do I mean by that? If you happen to have two brothers, let us say they grew up in Moradabad. One of them stays back in Moradabad and another happens to go off to, let us say, Dubai. After five years, one person will be earning a lot more than the other. Why does this happen? It is because places matter. So, what we need to do is to get the eastern half of India to get on and grow again. And this is an absolutely important thing because this is going to be the engine of growth going forward, whether in terms of industrial growth and other things.
So, the eastern half of India, is the real gap in India; it is not north-south, as is made up to be by some people, it is east-west. And so, investing in heavy infrastructure in the east and getting eastern India to begin to be a part of the growth story is important. Now, obviously, we are seeing huge infrastructure being built out in the northeast. There are states like Odisha where infrastructure has gotten built much faster, but there are states like West Bengal and others where we really need to see that big build-out happen. Then, you see, the whole engine will begin to grow in a different way.
What is your view on privatisation of the banking system, OMCs, etc? Do you think privatisation is the way to go or over the last five to seven years public sector entities have proven that they can work very efficiently?
Sanjeev Sanyal: As a general principle I am in favour of privatisation and you have seen that we have listed Air India and several others as well as LIC. A general preference for privatisation is there. This is not to suggest that the public sector has no role at all and even if you want to privatise, there is very often a case of cleaning the public sector up and building them up so that we can get a good price for it.
In both cases, investing somewhat in the public sector is important and of course there are areas where we want to retain a certain amount of public sector presence. For example, in banking we have been clear that while we want more private banks and we want them to expand quickly, there is a role for public sector banks as well and we intend to retain about four big public sector banks going into the future as well.
Now that does not mean that we do not want the private sector. We want the private sector to grow, in fact we want it to grow faster than the public sector so that over time more and more of the banking sector is run by private agents. We also would like there are some public sector banks that we may want to privatise as well at some point.
So, we have repeatedly talked about retaining a certain amount of mix in sectors like banking, defence, etc, which we consider strategic sectors. I am not letting into some new state secret or something like that; this is our way.
Now in general, we prefer the private sector to be at the cutting edge of innovation and so on and there are areas where like in space where historically it was entirely public sector, ISRO has done a great job so obviously you do not want… we still need ISRO, but there are areas where now ISRO is becoming an enabler for allowing private sector to come in. We have done the same thing for example in payments as NPCI runs UPI. The existence of UPI has allowed many private sector companies to build on it so there is the India stack.
So, there are areas where the public sector provides public goods or provides leadership or there is some benefit of retaining a level of mixed presence where the public sector will be retained but I keep telling you that in general, we prefer the private sector to be the driving force of the economy and provide the innovation, entrepreneurship, etc, and with the public sector and the government playing the leading role in things which can be called public goods.
Would you care to comment on the opposition allegations of the stock market manipulation per se on July 3rd and 4th? Any comment?
Sanjeev Sanyal: Well, I am not the one to respond to political allegations. If they have some proof of this, they should present it to SEBI and I am sure they will examine it.
What is your view on the global rating agencies and the sovereign rating of India? India with GDP growth at above 7%, has been one of the fastest growing economies for many quarters now. The current account deficit just turned into surplus. Should one ignore the global rating agencies completely and continue working? What is the government’s position?
Sanjeev Sanyal: There are things that do have real world implications for the way our cost of capital, etc, comes out, so we cannot ignore many of these global ratings. Now, I have argued this before that while many of these rating agencies have upgraded our outlook and so on, they are well behind the curve. My own calculation suggests that on any objective criteria India should be at least two levels above where it is on sovereign upgrades. So, not just one but two levels up from where we are currently rated but sovereign rating agencies have been very conservative and they have been well behind the curve for some time, but eventually I think reality will catch up with them.
Would the next five years belong to manufacturing or services,?
Sanjeev Sanyal: I think we need to push on both fronts. Raghuram Rajan and others have been arguing that we should sort of entirely tilt towards services. I am sorry; I do not agree with that for multiple reasons. First of all, we are a large economy, we can more than sustain expansion in both services and manufacturing and what is all this large infrastructure that we are building out, this is all beneficial to manufacturing, why should not we take advantage of it.
When you are talking of China plus one, a lot of those supply chains coming out, we have got to take advantage of where it is. It is in manufacturing and there is no reason we cannot compete with it.
There are many manufacturing areas where we are world-class. Take for example pharmaceuticals; we are the world’s pharmacy and now we are proving to you in electronics that we can be a serious player in electronics, we have just in the last four years gone from being a non-player to becoming the world’s second largest manufacturer of smartphones.
So, we can compete and we will compete that does not mean every single effort will succeed, but I totally disagree with those who say that India should somehow abandon manufacturing and just go for services, the fact is we will do well in services but there are many people who cannot write code or do artificial intelligence and other things. We have to deploy them in other activities and many of those things may be simple things like tightening screws and loading goods and things like that and that is fine. That is how every society has to create a ladder where the first step has got to be somewhere in manufacturing or construction and things like that.