Salman Anees Soz speaks to Outlook’s Puneet Nihcolas Yadav on his new book The Great Disappointment in which he writes about Modi govt’s economic policies, inheritance challenges faced by PM Modi, and the impact of demonetization among others.
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00:00 all the rhetoric that's coming out of the BJP, out of the Prime Minister about reforms
00:04 and about taking growth to a new trajectory, creating crores of jobs, manufacturing will
00:10 change and investment will grow. That was the context. And I think after five years,
00:17 I think because of errors of what I call errors of omission and commission, I think Mr. Modi
00:26 and Mr. Jaitley have presided over a very disappointing economic scenario. And now the
00:32 government's own latest Ministry of Finance monthly economic report now says that the
00:39 growth is slowing down and it is because the proximate causes are a slowdown in consumption,
00:47 investment and exports. What else is left?
00:52 Welcome to the Outlook Bibliophile. We have with us today Mr. Salman Amiz Sohz. Mr. Sohz
00:59 is an economic expert, a commentator. He's worked as an advisor with the World Bank,
01:12 with the Asian Development Bank and his domain expertise is on development economics, economic
01:20 planning strategy and he's also a spokesperson of the Congress Party. But why we have him
01:27 today with us is his book, The Great Disappointment. And this looks at the last five years of the
01:34 Modi years, Prime Minister Narendra Modi's government and the failures on the economic
01:42 policy front. Mr. Sohz, it's a rather fleeting category. I think it's a very interesting
01:50 kind of comment, great disappointment. It doesn't leave any grey areas. It's a very
01:57 simple assessment. How do you see the last five years in terms of the economic policy?
02:05 I think, you know, this title actually has, quite a few people have told me that, is it
02:13 really just the great disappointment or was it the great betrayal? You know, usually worded
02:19 it tough, it should be much tougher. But you know, I view it from the perspective of the
02:26 citizen. What would a citizen think about what has happened in the past five years?
02:32 If you remember when Mr. Modi took over in 2014, there were great expectations. And those
02:39 expectations were, you know, and the rhetoric was such about, you know, how the Modi government
02:44 would do in 16 months, what others did not do in 60 years. Others including Atul Dehari
02:50 Vajpayee for that matter. And that struck with me and, or rather that stuck with me.
02:57 And I kind of said, you know, I was thinking about it then in 2014. And you're right, I
03:04 was a Congress spokesperson then, I'm a spokesperson now. And you know, I said, all the rhetoric
03:10 that's coming out of the BJP, out of the Prime Minister about reforms and about taking growth
03:15 to a new trajectory, creating crores of jobs, manufacturing will change and investment will
03:22 grow. That was the context. And I think after five years, we, I think because of errors
03:30 of what I call errors of omission and commission, I think Mr. Modi and Mr. Jaitley have presided
03:38 over a very disappointing economic scenario. And now the government's own latest Ministry
03:45 of Finance monthly economic report now says that the growth is slowing down, and it is
03:52 because the proximate causes are a slowdown in consumption, investment, and exports. What
04:01 else is left? So I think overall, you know, on jobs front, on farmers distress, on small
04:08 businesses that were devastated during demonetization and the implementation of GST, I think when
04:16 you look at all this, and then you look at the opportunity that the Prime Minister had,
04:21 single party government after 30 years, in 30 years, and I think that is why I call it
04:26 a great disappointment.
04:33 Your book starts with a full chapter on inheritance. That's I think a very fair way of looking
04:38 at, because economic policy is always looked at as a continuum. Now, when you look at it
04:44 in terms of the inheritance part of Mr. Modi, as I was going through your chapters, you
04:51 also make a rather fair judgment or comment saying that even with the UPA, there were
04:58 a lot of failures, and that in terms of furthering economic reform, things could have been done
05:06 better. What were the liabilities in that sense that Modi inherited? And how difficult
05:11 would it have been for him in the initial years at least to proceed?
05:16 Well, this is a very important question, because it goes to the heart of why I wrote the book.
05:22 You see, I told you about this 60 years, I will do in 60 months what others did not do
05:26 in 60 years. As a development practitioner, I know that's not possible. So, you know,
05:30 that's a disingenuous way to say it. But you know, it actually compelled me to think about
05:34 what legacies others inherited. So, I talk about Prime Minister Nehru, and the legacy
05:40 that he had from the British was that he had the biggest refugee crisis outside of World
05:45 War II to deal with, and there was lack of food. There was no food in the country. In
05:50 fact, the first finance minister's budget speech is all about food, and the paucity
05:55 of food. And in a similar way, every Prime Minister received something. I think actually
06:01 Prime Minister Nehru received a very poor inheritance, but others got a mix, as did
06:07 Mr. Vajpayee, as did Dr. Malmohan Singh, as did Prime Minister Modi. Now, I think there
06:13 were some challenges that Mr. Modi kind of inherited, and the one big challenge in my
06:19 view is the banking sector problems that we've had. Now, you have to understand that the
06:25 banking sector is like the lifeblood of the economy. If the banking sector is not working
06:30 well, it has a direct impact across. Now, in 2012 or so, reports had started emerging
06:40 about the non-performing assets problem in India's banking sector, especially in public
06:45 sector banks. And many institutions had flagged this. The World Bank had flagged this, IMF,
06:52 the Reserve Bank of India, and the Ministry of Finance's Department of Economics. Everybody
06:57 had been talking about this incipient problem. And this problem, you know, contrary to this
07:01 idea that, oh, people just picked up the phone and gave loans to their cronies and all that,
07:06 that's not, I think that's unfair to so many people who do business legitimately in this
07:10 country. If you remember, the economy was growing really well, and the global economy
07:14 was doing well in the 2005 to 2008 area. Now, at that time, people became optimistic, perhaps
07:22 there was too much exuberance. They borrowed, invested, and then the global financial crisis
07:29 hit in 2008, and things started going downhill, and many people could not repay their loans.
07:33 So this was a problem that, to my mind, was the single biggest challenge that the new
07:37 government faced. And unfortunately, this is the, in my mind, this is the biggest problem
07:42 that they left unresolved. And I think this is the biggest contributor to the, what I
07:49 would say is the kind of a failure in economic policy management for this government.
07:54 Is it, you mentioned Amartya Sen, that several economists who've talked about mishandling
08:03 of the economy, who've talked about policy, I mean, when demonetisation happened, pretty
08:08 much every noted economist, not just in India, but even abroad, said that this is a disaster.
08:13 Dr. Manmohan Singh, who himself is an economist, predicted a 2% fall in the GDP. Now, not as
08:22 a Congress spokesperson, but as an economist, what is the impact of demonetisation?
08:28 So first of all, I wrote this book, obviously, I'm a congressman, so I can't divorce that
08:34 reality in any way. But you know, the fact is that this book is a very well, I mean,
08:38 to my mind, this is very well researched, does not kind of get into rhetoric, it just
08:42 talks about, I've tried to put my World Bank hat on and try to write this book. And I've
08:48 tried to be fair, you know, to Mr. Modi as well, and I have praised him in certain areas,
08:53 and I've praised Mr. Majapahit's government, and you know, but I've tried to be, you know,
08:57 even-handed. But demonetisation, in fact, I've written about demonetisation regularly,
09:04 was a mindless kind of experiment. You don't do something like that for a country that
09:09 is maturing.
09:10 You call it a self-goal.
09:11 It's not just a self-goal, it actually disproportionately impacted those who had no voice in this,
09:21 the marginalised, the poor. So, but, to be honest with you, even I kind of did not think
09:28 the impact would be so long-lasting. In fact, I remember an exchange on Twitter with Vivek
09:34 Deheja, who is an economist at a Canadian university, and he's a follower of Jagdish
09:41 Bhagwati. And I write about Jagdish Bhagwati in about what I said in this book. And Vivek,
09:46 who's a friend, you know, but we had this disagreement, and I said, you know, we're
09:50 going to see some adverse impacts over the next few quarters. And he felt that that was
09:55 not going to be the case. Turns out, we were both wrong. He was wrong because he felt he
10:01 had a much more optimistic view of it, and now, of course, he's changed his view on this.
10:05 I was wrong because I felt it was going to be a shorter-term impact, but it's turned
10:09 out to be longer-term. Now, there's IMF research which indicates that when you have shocks
10:13 to the economy that are like of this kind of a nature, not demonetisation per se, they've
10:17 done a cross-country study, they say that you have permanent loss of output. And the
10:23 reason for that is if you lose a business and you have to shut down, it's not that you
10:28 can just, after a few months, say, okay, I'm going to restart the business and it's going
10:31 to be just like it was, because things have moved on. So I think we've suffered permanent
10:35 losses of output. And why he did it, Mr. Modi must know better, but clearly he did not seek
10:44 advice from--and he had experts with him. He had Arvind Panagaria with him. He had Raghuram
10:49 Rajan with him. He had, you know, Arvind Subramanian with him. These are terrific, you know, senior
10:56 economists, although I have some disagreements with some of them, but they would never recommend
11:02 something like this.
11:03 This thing of an informal economy. Now, you also talked about the double impact, kind
11:11 of, immediately of months after demonetisation you had GST. From a layman's perspective who's
11:17 not, you know, a student of economy and of economics. Even to me it's clear that there
11:25 also seems to be a sort of a misguided assault on the informal sector. And something like,
11:33 let's have only the organised sector and not the unorganised sector, because the impression
11:38 seems to be that it's the unorganised sector where you have corruption and you have, you
11:43 know, cash dealings and all that. Is that where Mr. Modi largely went wrong? A very
11:50 wrong view of where, you know, the economy operates and what you should be doing.
11:56 And it's not just Mr. Modi. I think many people in this country have basically taken it upon
12:01 themselves to somehow, by hook or by crook, we've got to formalise the economy. Now, formalisation
12:06 is a good goal to have, but what most countries do is that they go through the process of
12:12 economic development over time as you progress, you know, parts of the economy formalise.
12:19 You have to transition.
12:20 Yeah, you have to go through, you have to go through the process. There are no shortcuts
12:24 to development. And I think that's what Mr. Modi and his supporters and all those who
12:28 support formalisation, they don't get. This obsession with formalisation has hurt India,
12:36 I think. Instead of letting people make money, make money, informal, formal, these are just
12:42 constructs in some ways, right? This whole idea that we must collect lots of revenues
12:48 for the government. I actually, I'm not in favour of that. The reason is simple. Like
12:54 I said, India remains a country with limited capacity to implement programmes, especially
12:59 in the government sector. So nobody can tell me, look what the government did with, when
13:04 the crude prices fell. So instead of giving some relief to the general population, what
13:09 did the government do? They actually increased the taxes so that there's no transfer of,
13:13 you know, benefit to the people. That means if you can tell me, if anybody can convince
13:20 me and say that government knows how to spend money better than the common person, then
13:26 I'll say, okay, then you're right. But the government does not know how to spend money
13:29 better. Basically that's a truism around the world, right? If the government knows
13:35 how to spend more money better, then yeah, all power to you. But that's not how Indian
13:39 government works. So I would have suggested, keep some money with the consumer. Let them,
13:45 they know how to spend their money. You take some of this benefit, give some of the benefit
13:51 to the consumers. This obsession with black money, Reddywala, I mean what black money
13:56 is, he just goes and, you know, sell something and get some money. He's trying to make it
14:01 pretty much uses it the same day. Let people, this is what I tell my own colleagues as well
14:07 in the party, and this is what we've been trying to kind of work towards. If you want
14:11 to create jobs in this country, you've got to unleash private enterprise, whether it
14:16 is a one man or one woman company, or if it's a conglomerate. Unleash them, especially at
14:22 the MSME level, micro, small and medium enterprise. Give them an opportunity to do their business.
14:29 When they grow, they'll hire people. But if you're always going to put somebody on their
14:33 head, yeh inspector hai, woh inspector hai, yeh permission hai, woh permission hai, they
14:37 will not flourish and you cannot create jobs.
14:40 We come back to the issue of inheritance. What is it that the new government is going
14:45 to inherit? You said it's not going to be good. But more importantly, what are the three
14:50 immediate steps that a new government, irrespective of the party, needs to take to put things
14:55 back in place? And how easy or difficult is it going to be?
14:59 Okay. Well, first of all, the inheritance is not going to be very good, unfortunately.
15:03 On balance, I think the inheritance is going to be very poor and it's going to be somewhat
15:09 very very challenging, I think, for the next government because all the basic indicators
15:14 are trending in the wrong direction. And this has been going on for a while and we don't
15:19 even know how big the economy really is. I don't really think anybody has any idea. This
15:27 notion that India is the sixth largest economy, which is fine, but that may soothe some people.
15:35 But on a per capita basis, we are way way below most countries and that is our reality.
15:41 We're still a poor country. In World Bank parlance, we are a low middle income country
15:47 with a per capita income of about $2000. So what do we do? I think that's the thing. It's
15:55 going to be a tough time, especially with these demographic challenges, job situation,
16:00 farmers' distress. I would say that the next government should immediately focus on restoring
16:06 autonomy to our institutions, especially economic institutions like the RBI and our institutions
16:14 that look after data, our economic data. We need to, one, bolster their capacity and we
16:21 need to affirm openly to the country that we will let these institutions be. They should
16:28 run professionally and of course, in tandem with the government, of course, but at the
16:34 same time they should do whatever they have to do. We should be helping them bolster their
16:40 capacity. Whatever they need, do they need other advisors to be with them, other expertise
16:45 to be available to them, that is what the government should be able to do. But institutions
16:50 in India, their credibility must be restored. Without that, we cannot do anything. Second
16:56 is that we need to figure out how to boost the economy in the short term. I think that's
17:00 very important because rural demand is in bad shape, consumer demand overall is in bad
17:05 shape. People have to understand that you can't be in an urban area and think that if
17:10 there is a problem in rural economy, then it is their problem. These are integrated
17:14 economies. Because the rural economy is in bad shape, the consumer goods industry is
17:20 in difficulty. So you have to worry about that. Auto sales are down, scooter sales are
17:26 down. The growth rates are really tanking. So we need to boost that. In my view, one
17:35 way to boost that is to immediately look at, in rural areas, immediately look at Manrega
17:40 and make sure that Manrega is operating at full capacity. Do as much as you can to say
17:45 people, you need work, you need help, we are here, no question, just do it. So we have
17:51 got to do that. We have also got to look at, we have got to immediately set up, the Congress
17:56 party has come up with this cash transfer scheme, something similar to boost consumption.
18:03 Because we still don't have a serious inflation issue right now in the country. So crude prices
18:09 by the way compared to Dr Manmohan Singh's time are still low. So we have some headroom.
18:15 At the same time of course this problem of GST and tax revenue shortfalls, they may constrain
18:22 the next government. But certainly looking at the rural side. And the other thing we
18:27 should do immediately is let private enterprise, tell private enterprise, go, you are unleashed,
18:33 do your work. And the Congress has a good proposal on that for MSMEs. Where you don't
18:38 really have to seek permission for free holiday of things. I wish it were like a permanent
18:42 holiday. Don't make people go to anybody for permission. If we can get those things started,
18:48 we need a short term, we need a bridge to the future. And that bridge must come now
18:53 in the first place. And by the way we have to look at the banking sector. We must not
18:58 forget that the banking sector deserves, because now the NPA problem is huge. And we also have
19:05 the non-bank financial companies, they are also in trouble. Mudra loans, their NPAs are
19:13 spiking. So we must really focus on that. Get experts, get them to kind of say, tell
19:18 us what we can do here. Let us look at the lessons of experience from other countries
19:21 and from India itself. And let us try and move on to these. These three, four things
19:26 are extremely important and urgent. If we start with those, I think that would be very
19:31 beneficial. Thanks for your time. Thank you. Thank you so much.
19:34 [Music]