India must sustain an annual growth rate of 7.5 per cent to 8 per cent over the next two decades to achieve its goal of becoming a developed nation, said Surjit Bhalla, economist and former executive director for India at the International Monetary Fund (IMF).
"You do that, you will reach developed country status," Bhalla noted at an event organised by Outlook Business, emphasising the importance of long-term economic expansion. However, he cautioned that a lower growth trajectory of 6 per cent to 6.5 per cent would be insufficient to meet the aspirations of millions of young Indians.
“If you don’t achieve that pace, you are not going to achieve Viksit Bharat. You are not going to be able to satisfy the dreams and aspirations of young Indians who are actively contributing to the country’s development,” he added.
Read more: https://www.outlookbusiness.com/news/india-needs-758-growth-for-viksit-bharat-goal-says-surjit-bhalla
#C3SummitandAwards #C3 #ClimateCircularityCommunity #OutlookEvents #IMF #SurjitBhalla #OutlookPlanet
"You do that, you will reach developed country status," Bhalla noted at an event organised by Outlook Business, emphasising the importance of long-term economic expansion. However, he cautioned that a lower growth trajectory of 6 per cent to 6.5 per cent would be insufficient to meet the aspirations of millions of young Indians.
“If you don’t achieve that pace, you are not going to achieve Viksit Bharat. You are not going to be able to satisfy the dreams and aspirations of young Indians who are actively contributing to the country’s development,” he added.
Read more: https://www.outlookbusiness.com/news/india-needs-758-growth-for-viksit-bharat-goal-says-surjit-bhalla
#C3SummitandAwards #C3 #ClimateCircularityCommunity #OutlookEvents #IMF #SurjitBhalla #OutlookPlanet
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NewsTranscript
00:00Thank you very, very much. As was mentioned, I've been asked to speak for the need for
00:07India to compete and innovate in today's fast-moving world. Now, the two concepts, competition
00:18and innovation, are very much related. And I think the problem in India is that we don't
00:28have too much competition, which is what I'll talk about. And therefore, we have lower than
00:36optimal innovation. Now, who makes policy in India? If we try and isolate or try and
00:46identify who is it that makes policy in India, we can then go ahead and think of what are
00:55the policies that are made, how they are made, and what is needed to change those policies.
01:03So very simply, and I will also talk about Trump and what he is doing to our policymaking,
01:15or should be doing to our policymaking. So you can decide. But the simple fact is, and
01:22this is much discussed all over, and especially after both the budget presentation on February
01:31the 1st, and the discussions about a trade treaty, a mini-trade treaty, between India
01:42and the US. So first, why is there a problem? Or what is the problem? And in my view, the
01:51problem is, that the policy that is made in India, industrial policy, including very
01:58much the problems that MSMEs face, is not made by elected officials. So who is making
02:10the policy if it is not made by elected officials? It's made by, and this was an article written
02:20some time back, about the fact that the policy is made by a set of individuals who are not
02:32elected. So in other words, it is not your politicians that make the policy, even though
02:41it is the case that every policy has to be authorised, sanctioned, made, quote unquote,
02:49by the policy makers, by the elected officials, the finance minister and so on and so forth,
02:55the commerce minister. So technically, they are the ones making the policy. But in reality,
03:03in my view, and that's what needs changing, and I'm actually quite optimistic that that
03:08change will come soon, but what needs changing is the fact that the policies that have been
03:16made, and I will talk only about industrial policies, there are policies towards agriculture,
03:23there are policies towards fiscal side, but really I will talk about the policies towards
03:31industry. Now in that, about policies towards industry, what we have, and hence the need
03:41for discussion about the lack of competition in India's industry. I'll just give you an
03:50example of the two sectors that are major contributors to India's development. There
04:02is the service sector, dominated to a large extent by the software, and there is the industrial
04:13sector, of which the MSMEs are a part, a micro part, a major part, but the policies towards
04:21them is what is not behaving in a fashion that one would like. So let me continue. So
04:31you have these two sectors, and you look at the trade and exports of service related and
04:42manufactured goods. And what we have for the very first time in Indian history, the service
04:48related exports are now higher than manufactured goods exports. What is the dominant part of
04:57service related exports? Software and everything related to it, and of course we now have AI
05:04and how that will change the universe, but even before we get to the AI, we have the
05:11service related exports, primarily computer software and related items, are the fastest
05:18growing item, where we, India, is better than most countries, including China. So what is
05:27it, that how is it that India, software exports, have performed, service exports, have performed
05:36so well, both in absolute terms, and in relative terms to our manufacturing, and in relative
05:45terms to China? And I have a very simple explanation for it. It is the one place, or it is the
05:53one sector, where the government didn't have much of a role to play, or government policies
06:00didn't have much of a role to play. So in manufactured goods exports, there was licensing, what you
06:08could produce, how you could produce, what's the size of the firm, even today, right, 30 years, 30 plus
06:16years after the reform started, the government still decides on the size of the firm. Second, or
06:24size of the plant, now, even down to the plant level. So why is this the case? And I think, and what is the
06:35influence of this has, that the deep state, as I have termed it, which is very similar to the American
06:44deep state, is dominated. Decisions there are influenced and dominated by major industrialists, and
06:58major policymakers in the government, that is bureaucrats. And you know, very interestingly, both
07:07Manmohan Singh, Prime Minister Manmohan Singh, and Prime Minister Modi, have one of the first things
07:13they said when they came to power, was that we want to have a lot more lateral entry into the decision
07:21making. And we want to encourage a constant inflow and outflow of individuals in the policymaking. And
07:31both of them, to date at least, have not succeeded. Now I come to, and why am I optimistic that this
07:42will change? This will change because we now have, and all of you have in the industry, whether it is
07:53software, or whether it is publishing, etc. You know, look at the example of McKinsey. Why is
08:02McKinsey, how has it been so successful? McKinsey has been so successful for the last, what, 30-40
08:11years, primarily because they are brought in when there is two people, or two organizations, or two
08:22policymakers, or two owners, or it can be more than two, I'm just giving that as an example, do not know
08:30how to settle their differences. So therefore, the idea is to bring in an outside expert, and the
08:39outside expert, both sides, or n number of sides, doesn't really matter, agree to abide by whatever
08:47they are, because they recognize that there's a problem. And the problem is that the firm is not
08:52doing so well. So let us, and we are not able to resolve it by ourselves. So let us get expert
09:00advice. And that expert advice is then accepted by all parties involved, and you go proceed forward.
09:10So how is what Trump is doing related to, or what Trump might have an effect, a positive effect on
09:19India, related to the McKinsey example. You have interest groups affecting policy, like in every
09:29country in the world, and in India. And let us say for purposes of argument, one interest group says,
09:38look, we need to not open up, not liberalize, have tariffs at a very high level, etc. And the infant
09:49industry argument, you've heard the infant industry argument, that we need to give them incentives in
09:55order for them to grow up. Now the problem with infant industry around the world, is that infants become
10:03geriatrics, without going through adulthood in between. So that is what we need to correct. And the reason
10:14infants become geriatrics, is because infants are very comfortable with high rates of protection. Okay.
10:25Their profits are easy, guaranteed. There's nobody, no accountability. What competition does is
10:36accountability. In order to compete, in order to survive, you have to compete. And that is not quite
10:46present in the case of when you have the kind of protection, your profits, you know, protection is
10:54basically a protection of your profits. And so why would you go ahead and innovate? I don't see, you
11:04know, if I'm making profits, there's no need for me to go ahead and endanger those profits by spending
11:13money on innovation. Because innovation requires investment. You must have heard that a lot of
11:20discussion today, including by the finance minister, is that there isn't enough R&D expenditure by the
11:32firms in India. So we need to ask, why isn't there R&D expenditure? Obviously, there's some, and the
11:47complaint by everybody, except those who should be doing R&D. And so when I talk to the people who
11:54should be doing R&D, the firms, and exactly this, I ask, you know, why aren't you investing in R&D? So
12:08their answer, and really is quite uniform, is that, look, we don't have an incentive to do so. So, and I
12:19said, what do you mean you don't have an incentive? And the answer generally is that, you know, we have to
12:27take a risk by innovating, by spending on R&D, absolutely. And we are guaranteed the profits that we are
12:36obtaining. That's why we don't have an incentive to go ahead and risk those profits. Very simple, very
12:46straightforward. Coming back, then, to the Trump example, there are policymakers in India, and I
12:54mentioned former Prime Minister Manmohan Singh, as well as Prime Minister Modi, who are very interested in
13:01bringing about a change in our policymaking, a change in our industrial policy. So here is Trump offering that
13:14we should cut tariffs. And you must have seen in the papers, etc., a lot of discussion, no, no, no, we shouldn't do
13:23what Trump is asking, you know, our liberty and our freedom, etc. And I think they are missing the point. We
13:33should do, cut taxes, cut import tariffs, cut non-tariff barriers. The big problem in India is not just the
13:43tariff levels, which are the highest in the world, but also the non-tariff levels, which doesn't get engaged in the
13:51conversation. But that is where the, if you will, the infiltration, that is what affects profitability, that is what
14:02affects investment. So I'm arguing that the government should use this, that look, we have to, you know, there is every
14:14country in the world has been affected by what Trump is doing. The US has a big stick in terms of the very, very large
14:30economy that they have. Everybody's trade is affected by what the US decides. And I'm not at all talking about whether what
14:41US is doing is good or bad. Okay, my emphasis and my concentration is what India should do. And India should definitely
14:55cut its taxes, that is its import taxes, and should definitely cut some of the non-tariff barriers, you know, the controls, who
15:06can produce where, you have to get permission, etc. Every country, you know, one other point I want to make, that when I bring
15:14this up, with policymakers in India and outside, and you know, they say, India is a democracy, you know, we have to cater to
15:24this, that. So there'll be 10,000 reasons offered as to why India is unique. Okay, so we can't do this. But then you have an
15:34example. There are lots of countries that are democratic, and are doing much better than we are. There are lots of countries
15:45that are not democratic, all facing the same problems, right? Every country has a, their relevant poverty problem, their interest
15:55groups, their political, you know, whether indirectly or directly, influences. So we all have that, that's the nature of
16:05policymaking in the world. But they somehow end up doing a lot better than we have. So I have offered this explanation. Here's an
16:17opportunity that has been provided an external opportunity for India to change course. And the difference it will be is the
16:27following. For 30 years, India has grown very consistently, come one, come all, Jamuna Aaya, Ganga Aaya, we have grown at something like
16:406.1, 6.2%, for the last 30 plus years. And I think we will grow at that rate, without much effort. But that's not how we should assess
16:56our fortunes, or misfortunes, or our policies, by the fact that we're growing at six. The Prime Minister has clearly outlined a plan for
17:07Vixit Bharat, for 2047, which is also mentioned here, everywhere you go. So what will, and what is generally agreed on, what will it take for
17:18us to achieve developed country status, and there are various definitions, etc., don't want to get involved. The simple, the simple factual or
17:30the simple point about growth rates, for achieving Vixit Bharat, is somewhere around seven and a half to 8% per year, for the next 20 odd
17:43years. You do that, you will reach developed country status. On the flip side, you don't do that, you continue growing at 6%, or even 6.5%, on
17:58obviously, this we are talking about a 20 plus, we're not talking about one year or so, you are not going to achieve Vixit Bharat, you're not
18:07going to be able to satisfy the dreams, the aspirations of millions of Indians, young Indians, who are aspiring and are contributing to the
18:21development of the country. They are the ones who will make the future. And they are the ones whose incentives and whose production and whose
18:33output, etc., we have to provide them with the best environment possible, or facilitate the best environment possible, through our policies, that
18:46they can go ahead and compete in this not so, you know, easy world, as was when I was growing up, or, you know, 20, 30, 40 years ago, it was easy to
19:03compete. Now, the world is wide open. So therefore, there's double reason why we should really try and facilitate innovation, competition, so we can
19:20become a developed country and grow at seven and a half to 8% a year. Thank you very much.