Interview/ Krishnamurthy V. Subramanian, executive director of IMF and former CEA
Krishnamurthy V. Subramanian has several titles you are free to choose from―the regular ‘Mr’ to ‘Er’ for his engineering degree from IIT Kanpur to 'Dr' for his doctorate in financial economics from the University of Chicago Booth School of Business, or the one he seems to personally prefer, ‘Prof’ from his academic days at the Indian School of Business in Hyderabad. Subramanian, however, would brook no argument on India’s prospects of becoming a global economic leader by 2047.
He does have a little more than an ordinary citizen's stake in it, having been instrumental in formulating the ‘Atmanirbhar Bharat’ and ‘Vocal for Local’ restructuring of India’s economic policy during his days as the chief economic adviser. He followed this up with the longer-term ‘Amrit Kaal 2047’ blueprint for India becoming a developed nation. It is also the foundation for his new book, India @100; Envisioning Tomorrow’s Economic Powerhouse (Rupa). Currently executive director at the International Monetary Fund, Subramanian espouses his fervent belief that India is all set to grab this ‘once-in-a-few-centuries’ opportunity. Excerpts from an interview:
Q You have painted such a rosy picture of India’s future in your book, like its GDP touching $55 trillion in 2047.
A This outcome hinges on whether we can grow at 8 per cent from now on till 2047. Of course, I have portrayed other scenarios as well. Even if we grow at 7 per cent, we will be $40 trillion and, if we grow only at 6 per cent, we will still be $30 trillion.
If some risks manifest it is possible that growth may be lower. Eight per cent is ambitious but achievable especially given the demography we have, the kind of policies that have been implemented over the past 10 years, the public digital infrastructure, the innovation and the entrepreneurship.
Also, anywhere between two-thirds to three-quarters of our economy is informal, and informal sector firms are far less productive than formal sector firms. So the emphasis on formalisation that is happening through the public digital infrastructure will be a key driver of productivity improvement.
And for the first time, we have entered the top 40 innovative countries list. So these will drive productivity improvements in the formal sector as well. When you put it all together, there are potential headwinds and potential tailwinds.
Q You say India has a once-in-a-century opportunity.
A I did not say once in a century; I said once-in-a-few-centuries opportunity! If we indeed grow at 8 per cent, we will be a $55 trillion economy. In that case we will be rubbing shoulders with the top economy of that time. The last time India was of a similar size to a top economy was in the 13th or 14th century. India accounted for at least one-third of the world's GDP consistently for every century up until 1750 CE. So we could be the second largest economy or maybe very, very similar in size to the largest economy.
Q What are the factors that will contribute to it? You mentioned the demographic dividend, but that could very well turn into a burden.
A The first is the formalisation of the economy, where informal sector firms come into the formal sector and thereby become far more productive.
You have to remember that growth comes from two key things. One is investment and the other is productivity improvements. We have to maintain about 35 per cent of GDP as investment. A key driver is productivity growth from informal sector firms becoming formalised. Then the significant improvements that have happened in innovation and entrepreneurship. In the interim budget, Rs1 lakh crore of long-term funding for innovation was announced. Together with the National Research Foundation, this will enable innovation. So, innovation and entrepreneurship will lead to productivity improvements, even among formal sector firms that still have a long way to catch up with the formal sector firms internationally.
I have laid out a four-pillared economic strategy for India. The first pillar is macroeconomic force and focus on economic growth. The second pillar is social and economic inclusion. The third pillar is ethical money making. We did not become a stellar economy by following the socialist model. If anything, by following the socialist model from 1947 to 1991, we really lagged behind while East Asian economies, South Korea, Singapore all grew.
And the last point is entrepreneurship and the wealth and jobs they can create. Whether it is wealthy individual X or wealthy individual Y, they are not stacking rupee bills in their mattresses. Their wealth is invested in companies that provide jobs. Wealth creation leads to job creation. Wealth creators need to be respected. This is a narrative change that is required.
Q We have seen a huge dearth of jobs and, in fact, the budget also addressed it to some extent, admitting that there is an issue.
A The narrative on employment has run far ahead of the actual data. A lot of the negative narrative on employment actually comes from very poor quality data that the Centre for Monitoring Indian Economy provides. If you look at the Reserve Bank of India report, it shows that over the past 10 years 12.5 crore jobs have been created. Just because the government is working on employment creation, that does not mean that jobs have not been created. The data shows it clearly.
Q You have mentioned that the slowdown before Covid originated due to the crony bank lending during the UPA era. Didn't demonetisation and other factors also contribute to it?
A Many people mention demonetisation. I want to point out the paper by my colleague at IMF, Gita Gopinath. They tried very hard to find the effect of demonetisation on growth and found no such impact. I think it is time we actually let the data speak here. Rather than going by just anecdotal accounts, we should be respecting empirical evidence.
Q You have made a confident, optimistic outlook of India's future. What could actually trip it up? Could a regime change, one with a different kind of economic policy coming in, pose a danger?
A What is important is good policies. In the past 10 years, we've had good economic policies, starting from the 500 million bank accounts that enabled us to do the JAM trinity (Jan Dhan-Aadhaar-Mobile), the IBC (insolvency and bankruptcy code), the way we dealt with Covid, both on the health front and on the economic front, rather than mimicking advanced economies.
People who live in the US and come here for a few days on vacation do not have such a good understanding of the Indian economic landscape as one has when you actually live here. At the same time, those who live here also need to be aware of what other countries are doing. A combination of both is what is required for policy.
We should not just cut-paste what advanced economies have done. For instance, the Maastricht Treaty for Europe requires countries to keep fiscal deficit at 3 per cent of the GDP. Our Fiscal Responsibility and Budget Management Act just cut-pasted that without accounting for the fact that India is at a very different stage of development where the sovereign has to create public goods, be it digital public goods, physical public goods, or human capital public goods. At the same time, our growth potential is much higher than that of Europe. Yet, we did cut-paste without taking into account some of these very important aspects. So the key risk is actually in not implementing good economic policies.