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“I think the Indian economy has been growing overall very well. Post-COVID, the growth rate has consistently been seven per cent. Of course, there’s been a little bit of a dip this quarter. Partly it is because of the slowdown in capital expenditures. That itself is because of some of the election cycles. Also, there’s been some impact on exports. But I expect this dip to be temporary,” Krishnamurthy V Subramanian, Executive Director at IMF.
“From the vantage point that I’ve been sitting on the IMF board, I have no hesitation in saying the world is bullish on India. The kind of public digital infrastructure that India has enacted, is something that almost every of my board colleagues often finds a mention. They mention it with sincere appreciation. Apart from that, the kind of inclusive growth that India has pursued over the last decade is also something that comes up for appreciation,” Subramanian, the former Indian Chief Economic Advisor and author of the latest book “India@100” told PTI in an interview.
Responding to a question, Subramanian said India during Covid chose to implement economic policy that was different from the rest of the world. While the rest of the world identified COVID as purely a demand-side shock, India was the only large economy to diagnose COVID as both a demand-side and a supply-side shock, he said.
Therefore, India implemented a judicious mix of demand and supply-side policies, spent judiciously but making sure that it reached those that were generally impacted by the pandemic, he said.
As a result, when the war in Europe started and the supply side problems that resulted, which led to substantial inflation in the rest of the world, it did not have as much of an impact on India, he explained.
“This is something that is very clearly revealed. If you see, while in the rest of the world, during the last couple of years, these countries, especially advanced economies have faced anywhere between two and a half to four times the historical average inflation, India had less than its historical average,” he said.
“Because you have to keep in mind you know India’s average inflation has been more than seven per cent and even though there were periods where inflation was slightly higher than the band of 2% to 6% you know which is basically what the inflation targeting regime requires, but still it’s been less than the historical average primarily because the very responsible fiscal policy that was pursued during COVID. The contrast with the rest of the world is palpable in this case,” Subramanian said.
From 2002 to 2013, the total factor productivity growth, rate of that was 1.3% per annum on average. From 2014 onwards, it has been 2.7% per annum. In other words, productivity has grown at more than double that compared to the previous period, he said.
“If you look at one of the telling indicators of the vibrancy of an economy, which is new firm creation.. from 2004 to 2014 using World Bank data, the new firm creation was only 3.2%, it was a trickle. That was because of a combination of a lot of factors. The economy itself was there weren’t enough reforms done which was reflected in this. In contrast, if you look from 2014 onwards, new firm creation has been orders of magnitude higher using the same World Bank data. As a result, today, India has the third largest entrepreneurial ecosystem in the world,” Subramanian said.
“Similarly, if you look at the innovation rankings in 2015 using global innovation rankings, India was ranked 85th. Today in the 2024 ranking, India is ranked 39th. I actually would want India to be even better, get into the top 20 and then 15. But the movement from 85th to actually 39th is certainly noteworthy. Equally, if you look at the ease of doing business, it has since stopped. But from about 140, which is what we were in 2014, to move to rank in the 60s when the last ease of doing business rankings came up. These are all clear indicators of significant vibrancy in the economy itself, which itself has been driven by a lot of the structural reforms that have been done since 2014,” he said.
In his book, Subramanian talks about India becoming a USD 55 trillion economy. To reach that goal, he said the country needs to push manufacturing sector growth significantly because that is critical for job creation and job creation itself is important for inclusive growth socially and economically inclusive growth in the country.
The second critical aspect that India needs to reform is this entire mindset of thinking about wealth and wealth creators as something that is not good. “Here in the United States, becoming wealthy is treated as the American dream. That is something that India needs to understand. When you think about every job, every person in any economy, not just here in the United States, but in India as well, if you think about each one of us who can put, let’s say, bread on our tables, it is because of some wealth creator,” he said.
This is something so fundamental that one has to understand. Wealth creators put their wealth in companies which provide jobs eventually. Without wealth creation, there is no job creation. “A lot of political rhetoric and the way we think about wealth creators is something that is very, very unfortunate. If you start thinking deeply, every job that we have in India is because of some wealth creator putting his wealth to work basically in a company, and that is how jobs get created. I think this fundamental aspect of reform is critical to understand that wealth creation is incredibly important,” he said.
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