Full Text | Subhash Garg on the Problem With the Modi Govt's Short-Term Economic Measures |
In a conversation with The Wire’s founding editor M.K. Venu, former finance secretary Subhash Garg says that India’s economic situation is vulnerable amid the global energy disruptions triggered by the attack on Iran by the US and Israel. Garg notes that the government is only looking at short-term economic measures, including appeals to cut imports and foreign travel, which clearly signal economic distress.
Garg cites how the rest of the world is behaving and urges structural reforms, faster energy transition, greater openness to global technology partnerships, and letting the rupee fall to its own level.
Below is the full text of their conversation, transcribed by Ipil Baski, an editorial intern at The Wire.
M.K. Venu: Hello and welcome to this special conversation on what is happening with the Indian economy. The Iran US conflict is showing no signs of quick resolution and we are seeing what is happening with inflation, with energy shortages, with fertilizer shortages, LPG shortages, everything feeding into a kind of hyperinflationary potential situation. The prime minister himself, from foreign soil, had warned recently that the kind of crisis that world economies are facing, especially the developing economies, could bring a lot of societies back to poverty, back to a situation of vast populations falling below the poverty line. As far as India’s economy is concerned, it is true that India is among the most vulnerable Asian economies hugely dependent on oil imports 80-85% to 88%, that is not denied by anybody. It’s a consensus that India is among the most vulnerable, but India was already vulnerable even before the US Iran war as aptly captured in the economic survey, just before the budget a few months ago, where the government admitted that the rupee was punching way below its weight. The government raised serious concerns over why foreign investment was shying away from India. Now this is the second or third year when we’ve had very very low next to zero foreign direct investments. Foreign institutional investments which are essentially portfolio investments which come into the stock market are also hugely negative. India has already seen over $21 billion of outflow this year. The rupee’s value is rapidly eroding, some say it’ll be 100 very soon and a lot of concerns around the economy. So today we decided that we would have someone who’s had hands-on experience with policy in the finance ministry until 2019 when he retired. Mr. Subash Garg, former finance secretary, is with us. Thank you Mr. Garg for joining us.
Subhash Garg: Thank you.
MKV: And Subhash Garg should need no introduction. He is a former finance secretary, author of two very well researched books that he has written both concerning the economy and policy and the latest one being No Minister where he has talked about the inner workings of the government, and no one better than Subash to explain to us what exactly is going on. Recently Subash tweeted that the Indian economy is falling apart, everything is going wrong, India is at a big risk. Falling rupee, energy, LPG shortages. He even spoke of growth, numbers or the GDP stock which appears to be exaggerated. So Mr. Garg just tell us – how do you see the present dire economic situation panning out? We had Surjit Bhalla, an economic adviser of this government who was during your tenure, I think, when you were still finance secretary, he went to the IMF as executive director and one of IMF’s job is to keep a close watch on the external sector situation for various countries, and Surjit Bhalla is saying in his write up, published two days ago in Indian Express, that India can be counted amongst the most fragile economies today along with Turkey, maybe fragile too, and I remember in 2013, India was among when there was a similar sort of crisis when the rupee was depreciating rapidly 20% over three months, we were counted among the fragile five and now we are as per Surjit’s own assessment, fragile one. How do you see all this, Mr. Garg, can you just lay out your own thoughts on the state of the economy, state of the currency?
SG: So thank you Venu. I think Surjit Bhalla’s piece in Indian Express is reflective of the desperate situation the Indian economy is in. He had defended the government for many years now. He was India’s econ executive director in the IMF for about three years. So, saying good things about the Indian economy and the government performance. To my mind, what he has written now, reflects the actual situation on the ground. I think the situation is still worse than what he has depicted, look at the growth situation. So, he has given out the numbers that don’t fall for this narrative of India being the fastest economy in the world, fastest major economy in the world. He has given out that in terms of growth we are ninth, in terms of per capita growth we are 16. So, all those numbers are coming apart, coming to make that the growth situation itself and remember this was the situation until last year and the things have deterioriated much more since then. I have been comparing the growth- there are three ways in which the growth can be measured. Real economy growth, the nominal economy growth and the dollar growth. The dollar growth is what is comparable across the world. In that we are actually in the negative with 10% depreciation of rupee and nominal growth of less than 10%, we are actually negatively growing. So, growth is very poor and this year…
MKV: you’re saying that dollar growth GDP growth is negative at the moment?
Subhash Garg -Right. Exactly. So if you compare internationally in a currency which is common to all rather than the fictional derived real economy growth in India when you don’t know what the real inflation is, any derived real economy growth is a suspect, so comparable dollar growth in current US dollars is actually negative. We are one of the worst performing country in the world. So that is where the growth situation is. Rupee I think everyone knows now, we were the worst performing currency last year at this moment also we are worst performing country in terms of rupee. Everyone is affected by the Iran-US-Israel conflict and the blockade in the Strait of Hormuz. But look at everyone else, the stock markets in the rest of the world other than India are not falling. In fact, still there are many stock markets that are rising. Even currency dollar is at a pressure and most currencies in the world are actually appreciating against dollar and in that situation we are depreciating and depreciating very badly. So you look at growth you look at the rupee energy situation is so terrible at this moment that very soon we may have a situation where you have to ration. Rationing is in some sort is the beginning. Fertilizer shortages you are going to face in the Kharif season. So, everywhere you look the conclusion is inescapable that the Indian economy is falling apart.
MKV: Yeah. So, Subash, tell me, this is just the beginning in the sense, a lot of experts, both economists and other experts, are saying that the actual supply shock energy shortage is still not fully reflected in the price of crude. Crude is still at about 107 or whatever 110 dollars a barrel but a lot of people say that this number does not reflect the actual shortage on the........