1
00:00:06,079 --> 00:00:08,960
Speaker 1: Welcome to KOI Time, a podcast series on markets and

2
00:00:08,960 --> 00:00:12,478
Speaker 1: economies from Devious Group Research. I'm Taimurbek, Chief economist. Welcome

3
00:00:12,478 --> 00:00:17,529
Speaker 1: you to our 172nd episode. Today we will talk about India,

4
00:00:17,690 --> 00:00:20,879
Speaker 1: for which we have Doctor Shekhar Iyer joining us from

5
00:00:20,879 --> 00:00:24,270
Speaker 1: New Delhi. Shekhar heads, by that I mean he's the

6
00:00:24,270 --> 00:00:28,559
Speaker 1: director and CEO of ICRA. ICREAR stands for Indian Council

7
00:00:28,559 --> 00:00:29,899
Speaker 1: for the Research of.

8
00:00:30,540 --> 00:00:36,540
Speaker 1: International economic relations and Shekhar's Institution Institute does much more

9
00:00:36,540 --> 00:00:39,060
Speaker 1: than that as you'll find out, uh, but, uh, this

10
00:00:39,060 --> 00:00:41,740
Speaker 1: is not Shekhar's first time at COVI time. He was

11
00:00:41,740 --> 00:00:43,240
Speaker 1: here with us about a year and a half ago

12
00:00:43,759 --> 00:00:47,409
Speaker 1: to talk about geoeconomic fragmentation back in episode 130. If

13
00:00:47,409 --> 00:00:49,840
Speaker 1: you haven't listened to that, I think it's a must listen.

14
00:00:49,939 --> 00:00:51,699
Speaker 1: I know a lot of people had very, very good

15
00:00:51,700 --> 00:00:55,529
Speaker 1: feedback about that, uh, conversation. Sheikh Ayer, welcome back to

16
00:00:55,529 --> 00:00:56,139
Speaker 1: KOI time.

17
00:00:57,189 --> 00:00:59,610
Speaker 2: Thank you, Tamur. Thank, thank you for having me back.

18
00:00:59,689 --> 00:01:02,509
Speaker 2: It's always nice to be invited back for something the

19
00:01:02,509 --> 00:01:05,190
Speaker 2: second time. It leaves you with the illusion that you

20
00:01:05,190 --> 00:01:09,149
Speaker 2: did something, uh, properly the first time around. And congratulations

21
00:01:09,150 --> 00:01:11,809
Speaker 2: on reaching 170 episodes. That's amazing.

22
00:01:12,790 --> 00:01:14,830
Speaker 1: Thanks, Shekhar. I think what it says is that we

23
00:01:14,830 --> 00:01:20,010
Speaker 1: had tasks incomplete. You cover so many things in your research. Uh,

24
00:01:20,029 --> 00:01:24,488
Speaker 1: on that conversation, we basically talked about global geoeconomic fragmentary

25
00:01:24,910 --> 00:01:27,628
Speaker 1: forces at play around trade war. I think we covered

26
00:01:27,629 --> 00:01:28,179
Speaker 1: that very well.

27
00:01:28,355 --> 00:01:30,994
Speaker 1: We didn't really touch on India, and now your work

28
00:01:30,995 --> 00:01:35,035
Speaker 1: focuses largely around that. So let's begin with a fairly

29
00:01:35,035 --> 00:01:37,274
Speaker 1: general discussion on India, after which I'd like to get

30
00:01:37,275 --> 00:01:40,514
Speaker 1: into some specific issues. But in general, your view of

31
00:01:40,514 --> 00:01:43,955
Speaker 1: the Indian economy, what's going right for the economy right now?

32
00:01:45,510 --> 00:01:49,510
Speaker 2: OK, thank you, Tamur. So, look, India is the world's

33
00:01:49,510 --> 00:01:53,510
Speaker 2: fastest growing major economy. We have been the fastest growing

34
00:01:53,510 --> 00:01:56,379
Speaker 2: major economy for 3 years in a row. It looks

35
00:01:56,379 --> 00:01:59,190
Speaker 2: like economic growth for the past fiscal year is going

36
00:01:59,190 --> 00:02:02,910
Speaker 2: to come in at 7.4%, stronger than most analysts were

37
00:02:02,910 --> 00:02:05,569
Speaker 2: expecting and excellent by practically any standard.

38
00:02:06,550 --> 00:02:10,869
Speaker 2: There have been several structural reforms recently, such as rationalizing

39
00:02:10,869 --> 00:02:15,168
Speaker 2: the Goods and Services Tax, implementing an inflation targeting framework,

40
00:02:15,550 --> 00:02:19,820
Speaker 2: and expanding the digital public infrastructure, which should lay the

41
00:02:19,820 --> 00:02:21,509
Speaker 2: foundations for greater.

42
00:02:21,639 --> 00:02:25,279
Speaker 2: And 7% growth for the foreseeable future, and I think

43
00:02:25,279 --> 00:02:28,059
Speaker 2: we could go into double digits if the reform momentum

44
00:02:28,059 --> 00:02:31,160
Speaker 2: accelerates on which more data. So there's a lot of

45
00:02:31,160 --> 00:02:33,399
Speaker 2: good stuff happening. Let me start with that and then

46
00:02:33,399 --> 00:02:35,839
Speaker 2: we can get to the not so good stuff perhaps

47
00:02:35,839 --> 00:02:36,960
Speaker 2: in the next question.

48
00:02:37,369 --> 00:02:41,369
Speaker 2: So that's one thing. Secondly, this very good growth record

49
00:02:41,369 --> 00:02:45,008
Speaker 2: is not coming at the expense of macroeconomic stability. Quite

50
00:02:45,008 --> 00:02:49,209
Speaker 2: the contrary, our fiscal, monetary and financial sector policies have

51
00:02:49,210 --> 00:02:52,550
Speaker 2: generally been very prudent. Inflation is subdued.

52
00:02:52,740 --> 00:02:56,538
Speaker 2: The current account deficit is contained. Um, the real effective

53
00:02:56,538 --> 00:02:59,639
Speaker 2: exchange rate looks like it's broadly in line with fundamentals.

54
00:02:59,740 --> 00:03:02,699
Speaker 2: Some models say that we are slightly undervalued, some models

55
00:03:02,699 --> 00:03:06,459
Speaker 2: say that we're slightly overvalued. Um, the public debt to

56
00:03:06,460 --> 00:03:08,059
Speaker 2: GDP ratio is coming down.

57
00:03:09,610 --> 00:03:13,809
Speaker 2: However, there's been an enormous amount of public infrastructure spending

58
00:03:13,809 --> 00:03:16,529
Speaker 2: in recent years. So just in the last 10 years,

59
00:03:16,610 --> 00:03:19,169
Speaker 2: the length of the highway network has more than doubled,

60
00:03:19,250 --> 00:03:22,690
Speaker 2: the number of airports has tripled, the cargo capacity of

61
00:03:22,690 --> 00:03:27,050
Speaker 2: ports and railways has increased by 60 to 70%. Electrification

62
00:03:27,050 --> 00:03:27,448
Speaker 2: has reached.

63
00:03:27,649 --> 00:03:31,609
Speaker 2: Most villages in India, about 90% of Indian adults now

64
00:03:31,610 --> 00:03:33,679
Speaker 2: have bank accounts, which is something which would have been

65
00:03:33,679 --> 00:03:36,809
Speaker 2: unimaginable at the turn of the century. Moreover, these bank

66
00:03:36,809 --> 00:03:40,190
Speaker 2: accounts are now linked to people's digital identities, linking them

67
00:03:40,190 --> 00:03:44,369
Speaker 2: up with a slew of government services. These are transformative

68
00:03:44,369 --> 00:03:45,529
Speaker 2: investments for the future.

69
00:03:46,880 --> 00:03:52,039
Speaker 2: But, and somewhat paradoxically, given the currently turbulent climate of

70
00:03:52,039 --> 00:03:56,440
Speaker 2: global trade, India finds itself almost by accident in a

71
00:03:56,440 --> 00:03:59,559
Speaker 2: sweet spot. To all those countries that are looking for

72
00:03:59,559 --> 00:04:02,639
Speaker 2: a China plus one strategy, you have to now add

73
00:04:02,639 --> 00:04:05,360
Speaker 2: all those countries that are seeking to reduce their dependence

74
00:04:05,360 --> 00:04:05,970
Speaker 2: on the USA.

75
00:04:06,699 --> 00:04:09,210
Speaker 2: Uh, you know, the FTA with the EU has been

76
00:04:09,210 --> 00:04:13,449
Speaker 2: under negotiation since 2007. It's hardly a coincidence that it

77
00:04:13,449 --> 00:04:16,640
Speaker 2: finally came to fruition during a period of US reciprocal

78
00:04:16,640 --> 00:04:21,480
Speaker 2: tariffs and blustering threats to annex Greenland. Many countries are

79
00:04:21,480 --> 00:04:24,660
Speaker 2: keen to strengthen trade and investment links with a stable,

80
00:04:24,700 --> 00:04:29,019
Speaker 2: democratic country that is not closely identified with any distinct

81
00:04:29,019 --> 00:04:33,119
Speaker 2: geopolitical group like the Western bloc or the Chinese bloc.

82
00:04:33,760 --> 00:04:37,359
Speaker 2: Uh, Finally, and I think most important of all, there

83
00:04:37,359 --> 00:04:40,919
Speaker 2: has been astonishing progress on poverty reduction over the last

84
00:04:40,920 --> 00:04:43,238
Speaker 2: few decades. I don't want to get into the very

85
00:04:43,238 --> 00:04:47,350
Speaker 2: latest numbers and controversies about how exactly poverty is measured,

86
00:04:47,600 --> 00:04:49,519
Speaker 2: but rather I'd like to step back a little and

87
00:04:49,519 --> 00:04:52,440
Speaker 2: look at the long arc of progress. In fact, in

88
00:04:52,440 --> 00:04:56,880
Speaker 2: my view, the achievement of India and China in reducing

89
00:04:56,880 --> 00:05:00,880
Speaker 2: poverty since economic liberalization in both countries began in the

90
00:05:00,880 --> 00:05:02,839
Speaker 2: 70s and 80s respectively.

91
00:05:03,178 --> 00:05:05,579
Speaker 2: That must count as one of the most sweeping and

92
00:05:05,579 --> 00:05:10,779
Speaker 2: dramatic improvements in human welfare of all time. Uh, Since 1983,

93
00:05:10,899 --> 00:05:13,299
Speaker 2: to put this in context, the proportion of the global

94
00:05:13,299 --> 00:05:16,980
Speaker 2: poor has fallen by about 1.3 billion people. China and

95
00:05:16,980 --> 00:05:21,940
Speaker 2: India together have accounted for 85% of that reduction. So

96
00:05:22,579 --> 00:05:26,209
Speaker 2: lots of very good things happening in the Indian economy, uh, and,

97
00:05:26,220 --> 00:05:29,049
Speaker 2: you know, uh, by any standards, the performance in the

98
00:05:29,049 --> 00:05:31,178
Speaker 2: areas that I've outlined has been excellent.

99
00:05:32,470 --> 00:05:34,450
Speaker 1: Peter, uh, I want to talk to you about some

100
00:05:34,450 --> 00:05:37,899
Speaker 1: of the not so, uh, great aspects of the Indian economy. Uh,

101
00:05:38,130 --> 00:05:40,200
Speaker 1: surely not everything is perfect, but before I go there,

102
00:05:40,250 --> 00:05:42,730
Speaker 1: I wanna ask you one follow-up question. You mentioned the

103
00:05:42,730 --> 00:05:46,750
Speaker 1: GDP statistic. You talked a little bit about the poverty statistics.

104
00:05:47,049 --> 00:05:50,109
Speaker 1: By and large, the data that we're getting out of India.

105
00:05:52,079 --> 00:05:54,350
Speaker 1: Can we sort of, you know, run with them without

106
00:05:54,350 --> 00:05:56,850
Speaker 1: much scrutiny? Is it good quality data or not so

107
00:05:56,850 --> 00:05:57,630
Speaker 1: good quality data?

108
00:05:58,890 --> 00:06:01,250
Speaker 2: Look, I think data will always need to be scrutinized.

109
00:06:01,329 --> 00:06:04,940
Speaker 2: That's true, uh, not just in India and other emerging markets,

110
00:06:05,010 --> 00:06:08,488
Speaker 2: but also in Western countries. I think in India we've

111
00:06:08,488 --> 00:06:12,529
Speaker 2: got a pretty good track record with data. Uh, sometimes

112
00:06:12,529 --> 00:06:16,290
Speaker 2: you have different sources, for example, consumption surveys giving you

113
00:06:16,290 --> 00:06:20,730
Speaker 2: somewhat different results from national income statistics. I mean, this

114
00:06:20,730 --> 00:06:22,488
Speaker 2: is to be expected, but generally.

115
00:06:22,600 --> 00:06:25,519
Speaker 2: Speaking, I don't think that there's any kind of generalized

116
00:06:25,519 --> 00:06:29,660
Speaker 2: problem with data. I think there are various technical issues

117
00:06:29,940 --> 00:06:33,720
Speaker 2: which are being resolved, um, and hopefully the quality of

118
00:06:33,720 --> 00:06:37,940
Speaker 2: data will improve over time. But nothing that I see

119
00:06:38,440 --> 00:06:42,119
Speaker 2: in this podcast is going to depend on any precise

120
00:06:42,119 --> 00:06:43,988
Speaker 2: measurement controversy that is current.

121
00:06:45,100 --> 00:06:45,579
Speaker 2: Very good.

122
00:06:45,899 --> 00:06:49,700
Speaker 1: All right, so, uh, strong growth performance, uh, over a

123
00:06:49,700 --> 00:06:55,880
Speaker 1: long horizon, good progress in poverty reduction, foundations for stronger growth,

124
00:06:56,250 --> 00:06:59,059
Speaker 1: may well be in place. Uh, what are the caveats?

125
00:07:00,649 --> 00:07:03,570
Speaker 2: OK, so many, many caveats, right? I've given you what

126
00:07:03,570 --> 00:07:06,450
Speaker 2: is a pretty broad silver lining, but let me delve

127
00:07:06,450 --> 00:07:09,089
Speaker 2: into the dark clouds behind that. So to begin with,

128
00:07:09,420 --> 00:07:12,220
Speaker 2: we have far too many people in the agricultural sector,

129
00:07:12,579 --> 00:07:15,459
Speaker 2: where productivity and incomes are very low. If you look

130
00:07:15,459 --> 00:07:19,059
Speaker 2: at agriculture and allied activities, they absorb almost half of

131
00:07:19,059 --> 00:07:22,540
Speaker 2: India's labor force, but contribute a mere 16% to GDP.

132
00:07:23,170 --> 00:07:26,410
Speaker 2: We have not achieved the kind of rural urban migration

133
00:07:26,410 --> 00:07:30,170
Speaker 2: that countries like China have, which is essential towards moving

134
00:07:30,170 --> 00:07:33,010
Speaker 2: towards a Vikshit Pa. So just to put this in context,

135
00:07:33,250 --> 00:07:36,549
Speaker 2: China went from 18% of the population living in cities

136
00:07:36,730 --> 00:07:39,250
Speaker 2: in 1976 before Deng Xiaoping began.

137
00:07:39,364 --> 00:07:43,964
Speaker 2: His reforms to 65% today, so that's about 2/3. In India,

138
00:07:44,045 --> 00:07:47,804
Speaker 2: the urbanization rate is only 35% or about 1/3. So

139
00:07:47,804 --> 00:07:52,325
Speaker 2: there's an enormous amount of structural transformation that is yet

140
00:07:52,325 --> 00:07:55,605
Speaker 2: to happen and shows very little signs of happening right now.

141
00:07:56,250 --> 00:07:59,750
Speaker 2: For this to happen, we need, you know, good policies

142
00:07:59,750 --> 00:08:03,130
Speaker 2: both in rural areas and in urban areas. On the

143
00:08:03,130 --> 00:08:05,570
Speaker 2: rural side, we need to make it much easier to

144
00:08:05,570 --> 00:08:10,570
Speaker 2: consolidate landholdings and convert land from, you know, growing staples

145
00:08:10,570 --> 00:08:14,359
Speaker 2: to either industrial use or at least to growing cash crops.

146
00:08:14,730 --> 00:08:20,328
Speaker 2: The average Indian farm comprises 1.08 hectares. This is compared

147
00:08:20,329 --> 00:08:20,769
Speaker 2: to 1.

148
00:08:20,910 --> 00:08:25,119
Speaker 2: 187 hectares in the United States. In India, the average

149
00:08:25,119 --> 00:08:27,850
Speaker 2: size of a herd for a dairy farmer is 2

150
00:08:27,850 --> 00:08:32,109
Speaker 2: to 3 animals. In the US it numbers hundreds. So

151
00:08:32,119 --> 00:08:34,960
Speaker 2: without the kind of economies of scale that you would

152
00:08:34,960 --> 00:08:38,880
Speaker 2: get from larger landholdings, it is essentially impossible to scale,

153
00:08:38,960 --> 00:08:43,820
Speaker 2: to mechanize, and to modernize. Uh, Shruti Rajagopalla and her

154
00:08:43,820 --> 00:08:45,559
Speaker 2: colleagues have recently written a.

155
00:08:45,669 --> 00:08:50,369
Speaker 2: Fantastic paper describing just how difficult land acquisition in India is.

156
00:08:50,750 --> 00:08:53,069
Speaker 2: So you know, they cover 20 states and kind of

157
00:08:53,070 --> 00:08:56,150
Speaker 2: go with a fine tooth comb through all the policies

158
00:08:56,150 --> 00:08:59,468
Speaker 2: that govern land acquisition. They find that the procedure for

159
00:08:59,469 --> 00:09:02,989
Speaker 2: change of land use alone rests on more than 50

160
00:09:02,989 --> 00:09:08,270
Speaker 2: primary statutes read together with hundreds of government orders implemented

161
00:09:08,270 --> 00:09:10,390
Speaker 2: through over 70 different offices.

162
00:09:11,150 --> 00:09:13,590
Speaker 2: In the states that they cover, the procedure for the

163
00:09:13,590 --> 00:09:16,729
Speaker 2: change of land use rests, uh, you know, um, it,

164
00:09:16,789 --> 00:09:20,510
Speaker 2: it needs a landowner to navigate 6 to 8 distinct

165
00:09:20,510 --> 00:09:24,710
Speaker 2: bureaucratic stages, often with their own conflicting timelines.

166
00:09:25,190 --> 00:09:27,989
Speaker 2: And in some cases, there is actually no way to

167
00:09:27,989 --> 00:09:30,190
Speaker 2: move from a low productivity use of land to a

168
00:09:30,190 --> 00:09:33,150
Speaker 2: high productivity use of land. And I love the example

169
00:09:33,150 --> 00:09:36,150
Speaker 2: of Keri. So in Kerala, I imagine a farmer who's

170
00:09:36,150 --> 00:09:39,380
Speaker 2: got a waterlogged paddy field, and a farmer has learned that,

171
00:09:39,390 --> 00:09:41,179
Speaker 2: you know, maybe I should grow rubber.

172
00:09:41,234 --> 00:09:45,125
Speaker 2: Uh, you know, rubber trees don't require too much care. Uh,

173
00:09:45,195 --> 00:09:50,705
Speaker 2: you get steady incomes. So in any normal functioning market economy, uh,

174
00:09:50,794 --> 00:09:53,515
Speaker 2: he would drain the field, raise the soil level, and

175
00:09:53,515 --> 00:09:57,375
Speaker 2: plant rubber saplings. In Kerala, this is a criminal act.

176
00:09:58,150 --> 00:10:01,049
Speaker 2: You know, you are allowed to grow intermediary crops on

177
00:10:01,049 --> 00:10:04,510
Speaker 2: paddy fields, crops that grow between the two regular cycles

178
00:10:04,510 --> 00:10:08,489
Speaker 2: of padding, because they are regarded as temporary and short term,

179
00:10:08,909 --> 00:10:12,108
Speaker 2: but you cannot actually change to some other crops without

180
00:10:12,109 --> 00:10:15,349
Speaker 2: changing the character of the land, which would then lose

181
00:10:15,349 --> 00:10:19,940
Speaker 2: its wetland nature, and this, you know, sort of unauthorized

182
00:10:19,940 --> 00:10:23,340
Speaker 2: conversion of land is subject to up to 2 years imprisonment.

183
00:10:24,849 --> 00:10:28,609
Speaker 2: Now, some states like Uttar Pradesh and Telangana have made progress,

184
00:10:28,729 --> 00:10:30,630
Speaker 2: so it's not impossible, but there's a lot of work

185
00:10:30,630 --> 00:10:33,250
Speaker 2: to be done. On the other side of the ledger,

186
00:10:33,369 --> 00:10:35,369
Speaker 2: you need a lot of work in cities. So currently

187
00:10:35,369 --> 00:10:38,049
Speaker 2: our cities don't have the absorptive capacity that would be

188
00:10:38,049 --> 00:10:41,130
Speaker 2: needed to absorb the kind of rural urban migration I'm

189
00:10:41,130 --> 00:10:44,049
Speaker 2: talking about. This is particularly true of tier 2 and

190
00:10:44,049 --> 00:10:46,929
Speaker 2: tier 3 cities, which need to have much better infrastructure

191
00:10:46,929 --> 00:10:48,830
Speaker 2: and need to expand greatly over time.

192
00:10:49,340 --> 00:10:51,520
Speaker 2: But that said, even our tier one cities need a

193
00:10:51,520 --> 00:10:53,979
Speaker 2: lot of work, you know, I'm currently living in Delhi

194
00:10:53,979 --> 00:10:56,340
Speaker 2: and have been for a few months, and as you

195
00:10:56,340 --> 00:10:59,218
Speaker 2: and I both know, the kind of pollution levels you

196
00:10:59,219 --> 00:11:02,780
Speaker 2: get in Delhi in winter is absolutely dystopian. So there's

197
00:11:02,780 --> 00:11:04,659
Speaker 2: a lot of work to be done on the rural side,

198
00:11:04,739 --> 00:11:05,940
Speaker 2: there's a lot of work to be done on the

199
00:11:05,940 --> 00:11:06,699
Speaker 2: urban side.

200
00:11:08,109 --> 00:11:12,309
Speaker 2: Secondly, let me come to entrepreneurship, which still remains very

201
00:11:12,309 --> 00:11:18,020
Speaker 2: shackled by an overzealous and habitually suspicious regulatory state. So,

202
00:11:18,030 --> 00:11:21,189
Speaker 2: you know, I'm constantly reminded of Pilu Modi's question to

203
00:11:21,190 --> 00:11:24,789
Speaker 2: Indira Gandhi on the floor of parliament, asking why Indian

204
00:11:24,789 --> 00:11:29,119
Speaker 2: entrepreneurs flourish everywhere in the world except in India. Now

205
00:11:29,349 --> 00:11:31,848
Speaker 2: that criticism has lost a bit of its bite recently,

206
00:11:32,030 --> 00:11:34,729
Speaker 2: to be fair, but doing business in India is still

207
00:11:34,729 --> 00:11:35,630
Speaker 2: not for the fainthearted.

208
00:11:36,260 --> 00:11:38,228
Speaker 2: You know, this is reflected, for example, I, you know,

209
00:11:38,309 --> 00:11:40,710
Speaker 2: I talked a few minutes ago about the enormous ramp

210
00:11:40,710 --> 00:11:45,580
Speaker 2: up in public infrastructure spending. Now, public infrastructure spending in

211
00:11:45,580 --> 00:11:48,830
Speaker 2: theory should be crowding in private investment because private investment

212
00:11:48,830 --> 00:11:51,390
Speaker 2: is complementary to public investment. If you look at the

213
00:11:51,390 --> 00:11:54,669
Speaker 2: private investment numbers in India, it remains very anemic. Why

214
00:11:54,669 --> 00:11:59,909
Speaker 2: isn't it happening? Uh, Manish Sabharwal talks about regulatory cholesterol.

215
00:12:00,460 --> 00:12:05,030
Speaker 2: The idea that the system is so clogged up with regulations, permissions, licenses,

216
00:12:05,049 --> 00:12:09,219
Speaker 2: and criminal penalties that it impedes entrepreneurship to begin with,

217
00:12:09,549 --> 00:12:13,150
Speaker 2: and then impedes scaling up if somehow entrepreneurship takes root

218
00:12:13,150 --> 00:12:16,510
Speaker 2: in inhospitable soil. So he and his team have documented

219
00:12:16,510 --> 00:12:20,390
Speaker 2: that a typical firm is required to comply with provisions under.

220
00:12:20,554 --> 00:12:27,205
Speaker 2: 1500 acts fulfill more than 69,000 compliances and complete more

221
00:12:27,205 --> 00:12:31,704
Speaker 2: than 6000 filings at the central, state, and local government levels.

222
00:12:32,195 --> 00:12:36,364
Speaker 2: Every year, these regulations undergo 9000 updates, and in order

223
00:12:36,364 --> 00:12:38,284
Speaker 2: to keep track of them, a firm would have to

224
00:12:38,284 --> 00:12:40,604
Speaker 2: navigate 3000 government websites.

225
00:12:41,299 --> 00:12:44,669
Speaker 2: OK, a lot of numbers. I think from those numbers

226
00:12:44,669 --> 00:12:47,630
Speaker 2: it's easy for you to see, first, that not even

227
00:12:47,630 --> 00:12:51,590
Speaker 2: the biggest and most morally upright enterprise can possibly be

228
00:12:51,590 --> 00:12:56,590
Speaker 2: in full compliance with the regulatory landscape. And second, why

229
00:12:56,590 --> 00:12:59,030
Speaker 2: small firms who don't have access to an army of

230
00:12:59,030 --> 00:13:01,030
Speaker 2: lawyers are differentially burdened.

231
00:13:02,640 --> 00:13:06,359
Speaker 2: Third, there is nowhere in the world, I think, which

232
00:13:06,359 --> 00:13:10,859
Speaker 2: better illustrates the maxim that justice delayed is justice denied.

233
00:13:11,450 --> 00:13:15,130
Speaker 2: Judicial backlog is a critical systemic crisis in India with

234
00:13:15,130 --> 00:13:19,210
Speaker 2: over 5 roll cases pending across all court levels, especially

235
00:13:19,210 --> 00:13:22,570
Speaker 2: the lower levels. This massive backlog is driven by a

236
00:13:22,570 --> 00:13:27,489
Speaker 2: very low judge to population ratio, inadequate infrastructure, and excessive

237
00:13:27,489 --> 00:13:31,250
Speaker 2: government litigation. So the government is party to about 50%

238
00:13:31,250 --> 00:13:32,989
Speaker 2: of all pending cases in India.

239
00:13:33,359 --> 00:13:36,919
Speaker 2: Cases can take decades, um, you know, there are over

240
00:13:36,919 --> 00:13:40,440
Speaker 2: 1.24 cases pending in lower courts which are over 5

241
00:13:40,440 --> 00:13:44,109
Speaker 2: years old. Uh, this is, you know, pun fully intended,

242
00:13:44,119 --> 00:13:48,229
Speaker 2: a criminal state of affairs, um, and then let me

243
00:13:48,229 --> 00:13:51,340
Speaker 2: make one final point which is that we tend to be,

244
00:13:51,599 --> 00:13:54,500
Speaker 2: or at least the Indian government tends to be instinctually

245
00:13:54,710 --> 00:13:55,479
Speaker 2: inward looking.

246
00:13:55,869 --> 00:13:59,400
Speaker 2: And that constrains our development opportunities. So while our tariff

247
00:13:59,400 --> 00:14:01,598
Speaker 2: rates have been going down, and there have recently been

248
00:14:01,599 --> 00:14:03,840
Speaker 2: a flurry of FTAs, which I'm sure we'll talk about

249
00:14:03,840 --> 00:14:07,039
Speaker 2: in due course, our tariffs remain among the highest in

250
00:14:07,039 --> 00:14:10,380
Speaker 2: the world, and our tariff regime one of the most complex.

251
00:14:10,919 --> 00:14:13,400
Speaker 2: Non-tariff barriers are an even bigger impediment.

252
00:14:13,750 --> 00:14:18,390
Speaker 2: It takes an average Indian manufacturer 30 days to obtain

253
00:14:18,390 --> 00:14:22,909
Speaker 2: clearance for an import. Compare this with 12 days for

254
00:14:22,909 --> 00:14:26,929
Speaker 2: the average G20 country and 9 days for the universal

255
00:14:26,929 --> 00:14:30,590
Speaker 2: emerging markets. You know, this is clearly a state of

256
00:14:30,590 --> 00:14:32,429
Speaker 2: affairs that needs radical reform.

257
00:14:32,950 --> 00:14:34,979
Speaker 2: We also score plenty of self goals when it comes

258
00:14:34,979 --> 00:14:38,299
Speaker 2: to FDI, which is a very well proven vehicle for

259
00:14:38,299 --> 00:14:42,460
Speaker 2: technology transfer and integrating with global supply chains. One famous

260
00:14:42,460 --> 00:14:45,820
Speaker 2: example here is Vodafone, uh, who were hit with a

261
00:14:45,820 --> 00:14:50,260
Speaker 2: retrospective tax assessment under which the Indian government sought to

262
00:14:50,260 --> 00:14:54,940
Speaker 2: claim taxes, uh, on a transaction based on a law

263
00:14:54,940 --> 00:14:57,940
Speaker 2: which was enacted 5 years after the transaction in question.

264
00:14:58,609 --> 00:15:02,530
Speaker 2: Now, ultimately, Vodafone won its case in international arbitration and

265
00:15:02,530 --> 00:15:06,429
Speaker 2: the Indian government refunded the tax claim to them, but

266
00:15:06,690 --> 00:15:09,929
Speaker 2: the episode I think is very illustrative of the kind

267
00:15:09,929 --> 00:15:12,900
Speaker 2: of mindset that needs to change. We need to be

268
00:15:12,900 --> 00:15:16,359
Speaker 2: rolling out the red carpet for trade and international investment,

269
00:15:16,690 --> 00:15:21,130
Speaker 2: not seeking out ever more Byzantine methods to discourage these things.

270
00:15:22,650 --> 00:15:24,929
Speaker 1: Very good. Sugar, since I want to spend the rest

271
00:15:24,929 --> 00:15:28,000
Speaker 1: of the conversation discussing fiscal policy, exchange rate, as well

272
00:15:28,000 --> 00:15:30,530
Speaker 1: as trade, let me squeeze in a couple of structural

273
00:15:30,530 --> 00:15:32,409
Speaker 1: questions related to the things that you talked about. One

274
00:15:32,409 --> 00:15:34,190
Speaker 1: would be related to labor market policy.

275
00:15:34,559 --> 00:15:35,890
Speaker 1: But first, I want to talk to you about the

276
00:15:35,890 --> 00:15:40,169
Speaker 1: role of technological innovation. So you've talked about structural impediments

277
00:15:40,169 --> 00:15:44,250
Speaker 1: from regulation on the agriculture sector, on entrepreneurship, and so on,

278
00:15:44,450 --> 00:15:46,650
Speaker 1: and I appreciate that very much. But as you and

279
00:15:46,650 --> 00:15:48,809
Speaker 1: I have sort of studied and seen in practice during

280
00:15:48,809 --> 00:15:51,489
Speaker 1: the course of our career, that the total factor productivity

281
00:15:51,489 --> 00:15:55,250
Speaker 1: increase is the key for long-term sustained uplift and growth,

282
00:15:55,289 --> 00:15:58,409
Speaker 1: and that has to come from some degree of technological innovation,

283
00:15:58,450 --> 00:16:01,049
Speaker 1: value added. What is the state of affairs of that

284
00:16:01,049 --> 00:16:01,690
Speaker 1: in India?

285
00:16:03,510 --> 00:16:05,469
Speaker 2: Well, so again, I think it's a bit like the

286
00:16:05,469 --> 00:16:09,549
Speaker 2: curate's egg, it's good in parts. Um, you know, there's a,

287
00:16:09,630 --> 00:16:12,830
Speaker 2: there's a, there's a lot of dynamism, I think, in

288
00:16:12,830 --> 00:16:16,460
Speaker 2: terms of Indian entrepreneurship, and as Pulu Pillu Modi said,

289
00:16:16,510 --> 00:16:19,109
Speaker 2: you see this everywhere in the world except perhaps in India.

290
00:16:19,390 --> 00:16:22,070
Speaker 2: But that's not entirely true because in India too, I

291
00:16:22,070 --> 00:16:26,349
Speaker 2: think there are a million mutinies going on. Um, and

292
00:16:26,349 --> 00:16:30,059
Speaker 2: there is very good work, especially on the digital side.

293
00:16:30,270 --> 00:16:32,510
Speaker 2: I've already talked about the fact that almost every.

294
00:16:32,614 --> 00:16:35,414
Speaker 2: Adult Indian has now got a bank account. These bank

295
00:16:35,414 --> 00:16:39,215
Speaker 2: accounts are linked with digital identities. Lots of government clearances

296
00:16:39,215 --> 00:16:42,895
Speaker 2: and paperwork can now take place virtually. A lot of

297
00:16:42,895 --> 00:16:47,174
Speaker 2: permissions have been abolished. A lot of stuff that used

298
00:16:47,174 --> 00:16:50,775
Speaker 2: to come through the public distribution system in kind now

299
00:16:50,775 --> 00:16:55,534
Speaker 2: takes place directly through cash transfers, um, but there's still

300
00:16:55,534 --> 00:16:58,215
Speaker 2: a long way to go in terms of unleashing the

301
00:16:58,215 --> 00:17:01,114
Speaker 2: dynamism of the manufacturing sector.

302
00:17:02,909 --> 00:17:05,390
Speaker 2: Let me come to the labor codes because you specifically

303
00:17:05,390 --> 00:17:08,589
Speaker 2: asked about them, right? So there's recently been a very

304
00:17:08,589 --> 00:17:12,670
Speaker 2: long awaited notification of the labor codes. Uh, this consolidates

305
00:17:12,670 --> 00:17:17,270
Speaker 2: 29 acts into 4, removing many provisions that used to

306
00:17:17,270 --> 00:17:21,310
Speaker 2: criminalize minor infractions of paperwork, uh, getting rid of many

307
00:17:21,310 --> 00:17:26,188
Speaker 2: rules that encouraged corruption like mandatory physical records, multiple licenses.

308
00:17:26,589 --> 00:17:31,419
Speaker 2: Requirements and the power to arbitrarily reopen past cases, the

309
00:17:31,420 --> 00:17:37,170
Speaker 2: labor courts also removed many very dated restrictions on women's

310
00:17:37,170 --> 00:17:40,649
Speaker 2: labor force participation. Like earlier, it was very difficult for

311
00:17:40,650 --> 00:17:43,379
Speaker 2: women to work night shifts in various places. A lot

312
00:17:43,380 --> 00:17:47,859
Speaker 2: of those regulations have been rationalized. Social Security has been

313
00:17:47,859 --> 00:17:50,390
Speaker 2: expanded to gig workers. Now in.

314
00:17:50,449 --> 00:17:54,050
Speaker 2: India, labor is on the so-called concurrent list, which means

315
00:17:54,050 --> 00:17:56,410
Speaker 2: that it is legislated both at the central and the

316
00:17:56,410 --> 00:17:59,609
Speaker 2: state level. The ball is now in states' courts and

317
00:17:59,609 --> 00:18:03,469
Speaker 2: states have made differential progress, but if states are able

318
00:18:03,469 --> 00:18:07,530
Speaker 2: to take advantage of the opportunity offered by the codification

319
00:18:07,530 --> 00:18:10,290
Speaker 2: of the labor laws, then we could see a huge

320
00:18:10,290 --> 00:18:14,469
Speaker 2: increase in both manufacturing and services employment opportunities.

321
00:18:15,000 --> 00:18:17,599
Speaker 1: That would be great. Uh, Shekhar, I was speaking to

322
00:18:17,599 --> 00:18:21,829
Speaker 1: an Indian entrepreneur recently who has textile investments both in

323
00:18:21,829 --> 00:18:25,079
Speaker 1: India as well as in neighboring neighboring economies, and he

324
00:18:25,079 --> 00:18:27,790
Speaker 1: said to me that on a scale of 1 to 10,

325
00:18:27,930 --> 00:18:31,160
Speaker 1: if he were to rate his own country, India's flex

326
00:18:31,160 --> 00:18:34,109
Speaker 1: market's flexibility, he would give that a 3, while a

327
00:18:34,109 --> 00:18:37,399
Speaker 1: certain neighboring economy, a textile exporting powerhouse, it'll be a

328
00:18:37,400 --> 00:18:38,920
Speaker 1: 9 in terms of easiness.

329
00:18:39,349 --> 00:18:42,670
Speaker 1: Uh, so, so that was, uh, you know, illustrated for

330
00:18:42,670 --> 00:18:44,829
Speaker 1: me because a practitioner who has businesses in both countries

331
00:18:44,829 --> 00:18:47,550
Speaker 1: is telling me this, but I take away the silver

332
00:18:47,550 --> 00:18:49,680
Speaker 1: lining from what you just said, which is if the

333
00:18:49,680 --> 00:18:52,550
Speaker 1: states do make progress in the near term in adopting

334
00:18:52,550 --> 00:18:54,679
Speaker 1: some of the labor market liberalization that have been implemented

335
00:18:54,680 --> 00:18:57,510
Speaker 1: at the central level, fingers crossed, maybe that's the Rubicon

336
00:18:57,510 --> 00:18:59,069
Speaker 1: we need to pass, and it just might be just

337
00:18:59,069 --> 00:18:59,670
Speaker 1: around the corner.

338
00:19:00,569 --> 00:19:03,089
Speaker 2: Yeah, let's hope so, and certainly the story of your

339
00:19:03,089 --> 00:19:04,369
Speaker 2: entrepreneur is very true

340
00:19:04,369 --> 00:19:04,689
Speaker 2: to me.

341
00:19:05,400 --> 00:19:08,729
Speaker 1: Uh, Sugar, it's budget season. I'm sure you've had your

342
00:19:08,729 --> 00:19:12,250
Speaker 1: fill of budget-related discussions, and I want to take advantage

343
00:19:12,250 --> 00:19:14,770
Speaker 1: of some of those things you've been talking about. Um,

344
00:19:14,890 --> 00:19:18,270
Speaker 1: maybe two-part question. First part, just the budget in terms

345
00:19:18,270 --> 00:19:22,569
Speaker 1: of fiscal transparency and debt dynamics. Where do you see

346
00:19:22,569 --> 00:19:23,589
Speaker 1: the fiscal stance?

347
00:19:24,270 --> 00:19:27,159
Speaker 2: So I think really that, you know, that's the most

348
00:19:27,160 --> 00:19:30,389
Speaker 2: heartening thing about the budget, which if I may say is,

349
00:19:30,400 --> 00:19:34,550
Speaker 2: is a worthy but unspectacular budget that makes incremental progress

350
00:19:34,550 --> 00:19:37,429
Speaker 2: in the right direction. So the nice thing is that

351
00:19:37,430 --> 00:19:41,439
Speaker 2: fiscal consolidation is continuing. The fiscal deficit in the last.

352
00:19:41,614 --> 00:19:44,574
Speaker 2: Fiscal year was down to 4.4% just a couple of

353
00:19:44,574 --> 00:19:47,823
Speaker 2: years ago it was 6.4%, so there's been very good progress.

354
00:19:48,255 --> 00:19:50,614
Speaker 2: Now for the next year, there's only a marginal fiscal

355
00:19:50,614 --> 00:19:55,375
Speaker 2: consolidation plan to 4.3%, but this is occurring despite a

356
00:19:55,375 --> 00:19:58,515
Speaker 2: big ramp up in capital expenditure. OK, so.

357
00:19:59,099 --> 00:20:02,458
Speaker 2: The capital expenditure is very high, you know, at 12.2

358
00:20:02,459 --> 00:20:06,459
Speaker 2: lakh crores, but even more important than this headline, you know,

359
00:20:06,540 --> 00:20:09,329
Speaker 2: there are also grants in aid to states that go.

360
00:20:09,500 --> 00:20:11,659
Speaker 2: If you add up the grants in aid for capital

361
00:20:11,660 --> 00:20:14,030
Speaker 2: expenditure together with the central government.

362
00:20:14,324 --> 00:20:19,564
Speaker 2: Government's CapE number, it amounts to about 4.4% of GDP,

363
00:20:19,905 --> 00:20:23,534
Speaker 2: which is basically almost exactly equal to the fiscal deficit.

364
00:20:23,824 --> 00:20:25,744
Speaker 2: So one way to think about this is that the

365
00:20:25,744 --> 00:20:29,824
Speaker 2: government is borrowing entirely to finance new investment, and that's

366
00:20:29,824 --> 00:20:30,604
Speaker 2: a good thing.

367
00:20:31,630 --> 00:20:35,959
Speaker 2: Uh, what about debt dynamics? Um, well, Sergeant Chenoy of

368
00:20:35,959 --> 00:20:40,719
Speaker 2: JPMorgan has done some interesting R minus G calculations, suggesting

369
00:20:40,719 --> 00:20:44,739
Speaker 2: that perhaps the most important number here is just nominal growth. So,

370
00:20:45,040 --> 00:20:48,280
Speaker 2: you know, the government's goal is to achieve 50% debt

371
00:20:48,280 --> 00:20:52,239
Speaker 2: to GDP ratio by fiscal year 2031. Currently we're at

372
00:20:52,239 --> 00:20:53,920
Speaker 2: about 55, 56%.

373
00:20:54,420 --> 00:20:58,300
Speaker 2: Now he calculates that in order to get to 55

374
00:20:58,300 --> 00:21:01,698
Speaker 2: to 50%, the center will need to reduce the fiscal

375
00:21:01,699 --> 00:21:06,219
Speaker 2: deficit to 3.6% of GDP with a 10% nominal rate

376
00:21:06,219 --> 00:21:09,699
Speaker 2: of GDP growth. However, if the rate of growth is

377
00:21:09,699 --> 00:21:13,859
Speaker 2: just 1% point lower at 9%, then the fiscal consolidation

378
00:21:13,859 --> 00:21:15,000
Speaker 2: will need to be 3%.

379
00:21:15,560 --> 00:21:20,040
Speaker 2: Uh, you know, so clearly high growth is a very

380
00:21:20,040 --> 00:21:25,130
Speaker 2: important element of the debt reduction strategy. Uh, another wildcard

381
00:21:25,130 --> 00:21:28,000
Speaker 2: I should mention here which Doctor Kavita Rao has been

382
00:21:28,000 --> 00:21:31,479
Speaker 2: emphasizing is that India is soon going to have a re-based.

383
00:21:31,729 --> 00:21:35,969
Speaker 2: GP series and when that happens, that may throw all

384
00:21:35,969 --> 00:21:38,750
Speaker 2: these things I've said about debt dynamics out of the window.

385
00:21:39,209 --> 00:21:41,739
Speaker 2: So for example, if nominal GDP happens to be 10%

386
00:21:41,739 --> 00:21:44,680
Speaker 2: lower in the rebate series, that means that the corresponding

387
00:21:44,680 --> 00:21:47,198
Speaker 2: fiscal effort to reach government goals will need to be

388
00:21:47,199 --> 00:21:47,829
Speaker 2: much higher.

389
00:21:48,369 --> 00:21:50,438
Speaker 1: Uh, Shakar, we have seen this in the past. Uh,

390
00:21:50,530 --> 00:21:52,889
Speaker 1: I think it was about a decade ago when normal

391
00:21:52,890 --> 00:21:57,209
Speaker 1: GDP was revised up substantially and that dynamic improved, but

392
00:21:57,209 --> 00:21:59,209
Speaker 1: it also came at the expense of the revenue ratios

393
00:21:59,209 --> 00:22:00,199
Speaker 1: falling substantially.

394
00:22:00,520 --> 00:22:03,040
Speaker 1: Uh, so, you know, no free lunch, right? On one hand,

395
00:22:03,119 --> 00:22:05,879
Speaker 1: that dynamic improves, but then revenue ratio for India, which

396
00:22:05,880 --> 00:22:09,880
Speaker 1: already is pretty endemic, looks worse, despite the heroic advancements

397
00:22:09,880 --> 00:22:11,160
Speaker 1: in the receipts around GST.

398
00:22:12,119 --> 00:22:14,430
Speaker 2: No, absolutely. So, so, you know, there's a lot of

399
00:22:14,430 --> 00:22:16,959
Speaker 2: uncertainty about that, and then the other thing that I

400
00:22:16,959 --> 00:22:19,760
Speaker 2: should mention is that so far I've only talked about

401
00:22:19,760 --> 00:22:20,380
Speaker 2: the center.

402
00:22:20,849 --> 00:22:23,520
Speaker 2: Uh, where the performance has been good and the fiscal

403
00:22:23,520 --> 00:22:27,209
Speaker 2: consolidation has been steady and gradual, in the states it's

404
00:22:27,209 --> 00:22:29,130
Speaker 2: the other way around. So it looks as if there's

405
00:22:29,130 --> 00:22:32,369
Speaker 2: a monotonic increase in the debt to GDP ratio in states.

406
00:22:32,449 --> 00:22:36,719
Speaker 2: The states are quite heterogynous. Some are less responsible than others,

407
00:22:37,050 --> 00:22:40,709
Speaker 2: and ultimately what's happening at the state level could undo

408
00:22:40,709 --> 00:22:43,400
Speaker 2: or offset whatever good things are happening at the central level.

409
00:22:44,119 --> 00:22:46,810
Speaker 2: And in this context, let me also mention something which

410
00:22:46,810 --> 00:22:48,930
Speaker 2: people have kind of, you know, it's kind of slipped

411
00:22:48,930 --> 00:22:50,849
Speaker 2: under the radar a bit because it happened at the

412
00:22:50,849 --> 00:22:53,688
Speaker 2: same time as the budget and the FTAs. And this

413
00:22:53,689 --> 00:22:56,909
Speaker 2: is the long awaited report of the 16th Finance Commission.

414
00:22:57,369 --> 00:22:59,530
Speaker 2: And what it, it does several good things, like, you know,

415
00:22:59,609 --> 00:23:03,369
Speaker 2: it wraps the state's knuckles in terms of the unconditional

416
00:23:03,369 --> 00:23:06,599
Speaker 2: transfers that they are making. It urges them to seize

417
00:23:06,599 --> 00:23:10,849
Speaker 2: off budget financing and bring everything above the line. But

418
00:23:10,849 --> 00:23:13,010
Speaker 2: one thing that I wanted to highlight is that.

419
00:23:13,430 --> 00:23:15,630
Speaker 2: They, you know, when you have, you have a formula

420
00:23:15,630 --> 00:23:18,729
Speaker 2: to allocate central revenue to the states, and in the

421
00:23:18,750 --> 00:23:22,469
Speaker 2: old system there was a 2.5% weight on tax revenue

422
00:23:22,469 --> 00:23:25,420
Speaker 2: efforts at the state level. So you were rewarded for,

423
00:23:25,750 --> 00:23:28,760
Speaker 2: you know, better tax receipts. That has now been removed.

424
00:23:29,479 --> 00:23:33,560
Speaker 2: So it's now 0, so I worry that this will

425
00:23:33,560 --> 00:23:39,060
Speaker 2: disincentivize tax efforts precisely at the time that it's needed most, uh,

426
00:23:39,079 --> 00:23:39,760
Speaker 2: I guess.

427
00:23:40,130 --> 00:23:43,770
Speaker 2: You know, perhaps I'm, I'm worrying too much about it. 2.5%

428
00:23:43,770 --> 00:23:46,459
Speaker 2: was never a very big weight, and some fiscal efforts,

429
00:23:46,770 --> 00:23:49,410
Speaker 2: some fiscal experts have told me that states never took

430
00:23:49,410 --> 00:23:52,459
Speaker 2: that seriously when they were sort of endogenizing their decision.

431
00:23:52,760 --> 00:23:54,969
Speaker 2: But anyway, uh, this is just a long way of

432
00:23:54,969 --> 00:23:56,969
Speaker 2: saying that you have to watch what's happening in the

433
00:23:56,969 --> 00:23:59,569
Speaker 2: states when you're thinking about the debt situation and debt

434
00:23:59,569 --> 00:24:00,609
Speaker 2: dynamics in India.

435
00:24:01,310 --> 00:24:03,708
Speaker 1: Very good. OK, so the second part of the fiscal

436
00:24:03,709 --> 00:24:06,430
Speaker 1: question is related to sectoral focus. We began this discussion

437
00:24:06,430 --> 00:24:09,790
Speaker 1: by talking about agriculture and how productivity has been poor there.

438
00:24:09,910 --> 00:24:12,228
Speaker 1: So does the budget do anything heroic in terms of

439
00:24:12,229 --> 00:24:14,209
Speaker 1: tackling those issues of the agriculture sector?

440
00:24:15,770 --> 00:24:17,069
Speaker 2: Look, agriculture.

441
00:24:18,630 --> 00:24:20,479
Speaker 2: OK, let me, let me put it this way, we

442
00:24:20,479 --> 00:24:26,280
Speaker 2: have in ICRA, my organization, perhaps the preeminent agricultural economist

443
00:24:26,280 --> 00:24:30,160
Speaker 2: in India, Doctor Ashok Gulati, and you know, he has

444
00:24:30,160 --> 00:24:33,520
Speaker 2: done some work comparing the, the returns on the fertilizer

445
00:24:33,520 --> 00:24:37,319
Speaker 2: subsidy to the returns on agricultural research and development.

446
00:24:38,000 --> 00:24:40,688
Speaker 2: And the numbers are striking. For ₹1 spent on the

447
00:24:40,689 --> 00:24:44,369
Speaker 2: fertilizer subsidy, there is a return of 88 pes in

448
00:24:44,369 --> 00:24:48,290
Speaker 2: terms of output. For ₹1 spent on agricultural R&D, the

449
00:24:48,290 --> 00:24:52,770
Speaker 2: return is ₹11. For every, for every million rupees spent

450
00:24:52,770 --> 00:24:56,409
Speaker 2: on the fertilizer subsidy, an estimated 26 people are lifted

451
00:24:56,410 --> 00:25:00,089
Speaker 2: out of poverty, whereas the corresponding figure for agricultural R&D

452
00:25:00,089 --> 00:25:02,069
Speaker 2: is 328 people.

453
00:25:02,660 --> 00:25:05,260
Speaker 2: These are differences of an order of magnitude, right? They're

454
00:25:05,260 --> 00:25:08,139
Speaker 2: a factor greater than 10. And yet, when you look

455
00:25:08,140 --> 00:25:12,219
Speaker 2: at the budget, there is this complete persistent imbalance between

456
00:25:12,219 --> 00:25:15,290
Speaker 2: the amount we spend on the fertilizer subsidy, which in

457
00:25:15,290 --> 00:25:19,099
Speaker 2: the current budget is 1.7 lakh crores, versus what is

458
00:25:19,099 --> 00:25:21,859
Speaker 2: spent on R&D expenditure, which in the current budget is

459
00:25:21,859 --> 00:25:23,459
Speaker 2: 0.1 lakh.

460
00:25:23,765 --> 00:25:28,135
Speaker 2: Crow. So this is a big opportunity missed, I think,

461
00:25:28,265 --> 00:25:31,344
Speaker 2: you know, it's certainly true that it's politically difficult to

462
00:25:31,344 --> 00:25:34,625
Speaker 2: make reforms to the fertilizer subsidy, but there is never

463
00:25:34,625 --> 00:25:36,984
Speaker 2: a better time to have done it than a time

464
00:25:36,984 --> 00:25:41,584
Speaker 2: when growth is rapid and the macroeconomy is stable. So yeah,

465
00:25:41,704 --> 00:25:44,604
Speaker 2: I think there was an opportunity missed. That said,

466
00:25:46,010 --> 00:25:50,109
Speaker 2: Let me also say that I think maybe people expect

467
00:25:50,109 --> 00:25:52,329
Speaker 2: too much out of the budget. You know, the budget

468
00:25:52,329 --> 00:25:56,250
Speaker 2: is one day of the year, and there are 364

469
00:25:56,250 --> 00:26:00,329
Speaker 2: other days of the year when unspectacular reforms should be

470
00:26:00,329 --> 00:26:03,649
Speaker 2: proceeding apace. So my hope is that what's happening off

471
00:26:03,650 --> 00:26:06,849
Speaker 2: budget is actually more important than what's happening on budget.

472
00:26:07,800 --> 00:26:09,319
Speaker 1: Sure, but at the same time, it seems to me

473
00:26:09,319 --> 00:26:12,719
Speaker 1: that the shiny part of the Indian economy where the

474
00:26:12,719 --> 00:26:16,310
Speaker 1: authorities have a lot of focus is manufacturing and not agriculture, uh,

475
00:26:16,319 --> 00:26:18,359
Speaker 1: that is grabbing all the headlines. So let's talk a

476
00:26:18,359 --> 00:26:22,099
Speaker 1: little bit about what the budget did for the manufacturing sector.

477
00:26:23,050 --> 00:26:26,139
Speaker 2: So there's a lot of SOPs for the manufacturing sector, um,

478
00:26:26,619 --> 00:26:28,659
Speaker 2: you know, there's a lot of rhetoric in the budget

479
00:26:28,660 --> 00:26:32,060
Speaker 2: about the importance of MSMEs, which account for the bulk

480
00:26:32,060 --> 00:26:35,699
Speaker 2: of manufacturing employment in India, and there are certainly some

481
00:26:35,699 --> 00:26:40,420
Speaker 2: good initiatives there, um, in particular in terms of increasing

482
00:26:40,420 --> 00:26:42,979
Speaker 2: access to finance for some of these small and medium

483
00:26:42,979 --> 00:26:45,699
Speaker 2: firms which may not have the kind of collateral or

484
00:26:45,699 --> 00:26:48,050
Speaker 2: credit histories which are very easy to deal with in

485
00:26:48,050 --> 00:26:48,979
Speaker 2: the banking system.

486
00:26:49,449 --> 00:26:52,569
Speaker 2: And in particular what the government has done is it's

487
00:26:52,569 --> 00:26:57,349
Speaker 2: linked government procurement with a trade receivables discounting system called

488
00:26:57,349 --> 00:27:01,209
Speaker 2: Trends for MSMEs. I, I know that sounds like geek speak,

489
00:27:01,290 --> 00:27:04,650
Speaker 2: but it's actually quite important to ensure that MSME suppliers

490
00:27:04,650 --> 00:27:07,208
Speaker 2: are paid on time and that they can use government over.

491
00:27:07,334 --> 00:27:10,135
Speaker 2: Is to procure credit. So that's great. There's a number

492
00:27:10,135 --> 00:27:14,454
Speaker 2: of very worthy programs and initiatives in my view. All

493
00:27:14,454 --> 00:27:19,494
Speaker 2: these faints at industrial policy are ultimately far less important

494
00:27:19,494 --> 00:27:23,214
Speaker 2: than horizontal structural reforms to lift all boats, and as

495
00:27:23,214 --> 00:27:25,155
Speaker 2: we said a minute ago, a lot of that stuff.

496
00:27:25,589 --> 00:27:29,040
Speaker 2: Should be happening on the other 364 non-budget days of

497
00:27:29,040 --> 00:27:32,479
Speaker 2: the year. There is a truckload of empirical evidence to

498
00:27:32,479 --> 00:27:37,280
Speaker 2: suggest that the returns from broad-based measures, you know, to

499
00:27:37,280 --> 00:27:41,319
Speaker 2: cut red tape, lower regulatory burdens on businesses, free up

500
00:27:41,319 --> 00:27:46,449
Speaker 2: labor markets, land markets, international competition are far higher than

501
00:27:46,449 --> 00:27:49,280
Speaker 2: the returns from subsidizing favored industries.

502
00:27:50,439 --> 00:27:52,889
Speaker 1: Shaker, I, I hope this message resonates because I think

503
00:27:52,890 --> 00:27:54,968
Speaker 1: it's a very critical one, and I'll make sure that

504
00:27:54,969 --> 00:27:57,688
Speaker 1: when we create like a summary, not an AI generated summary,

505
00:27:57,739 --> 00:28:00,609
Speaker 1: but my own summary of this podcast, I will uh

506
00:28:00,609 --> 00:28:02,290
Speaker 1: stress on this point because I think you and I

507
00:28:02,290 --> 00:28:05,290
Speaker 1: both agree that that's where the critical foundation of future

508
00:28:05,290 --> 00:28:06,410
Speaker 1: uplift of growth lie.

509
00:28:06,630 --> 00:28:10,349
Speaker 1: Uh, Shekhar, economists have long talked about how India sort

510
00:28:10,349 --> 00:28:14,030
Speaker 1: of went through premature deindustrialization and when it should have

511
00:28:14,030 --> 00:28:17,469
Speaker 1: been ramping up manufacturing, it sort of let services blossom.

512
00:28:17,750 --> 00:28:19,510
Speaker 1: So what is the state of the services sector and

513
00:28:19,510 --> 00:28:22,400
Speaker 1: how is this budget, uh, directly or indirectly helping the

514
00:28:22,400 --> 00:28:23,329
Speaker 1: services sector?

515
00:28:24,750 --> 00:28:28,030
Speaker 2: So indeed, uh, you know, in India, you know, Arvind

516
00:28:28,030 --> 00:28:32,659
Speaker 2: Subramanyam and Devesh Kapoor have recently written this poem about

517
00:28:32,660 --> 00:28:36,430
Speaker 2: India's development journey since independence, and it's a great book

518
00:28:36,430 --> 00:28:38,739
Speaker 2: in many respects, and you know, they talk about India

519
00:28:38,739 --> 00:28:41,510
Speaker 2: as a precocious democracy, not in the sense of having

520
00:28:41,510 --> 00:28:43,750
Speaker 2: done things early, but in the sense of having done

521
00:28:43,750 --> 00:28:44,790
Speaker 2: things in a different order.

522
00:28:45,064 --> 00:28:48,694
Speaker 2: From the universal pattern, and what you are mentioning is

523
00:28:48,694 --> 00:28:51,665
Speaker 2: one of the key elements of that precocious democracy that

524
00:28:51,665 --> 00:28:55,854
Speaker 2: in India, instead of going from agriculture to manufacturing to services,

525
00:28:56,104 --> 00:28:58,824
Speaker 2: we seem to have kind of, first of all, continued

526
00:28:58,824 --> 00:29:01,094
Speaker 2: to be very heavily in agriculture, and then to the

527
00:29:01,094 --> 00:29:03,185
Speaker 2: extent that a shift has taken place, it's taken place

528
00:29:03,185 --> 00:29:05,185
Speaker 2: to services, not to manufacturing.

529
00:29:05,599 --> 00:29:09,739
Speaker 2: Now, look, we have a good record in services, especially

530
00:29:09,739 --> 00:29:13,359
Speaker 2: on the balance of payments where services are becoming increasingly important.

531
00:29:13,670 --> 00:29:16,359
Speaker 2: If you look at global capability centers, there's a bunch

532
00:29:16,359 --> 00:29:19,959
Speaker 2: of multinationals which are coming into India and using global

533
00:29:19,959 --> 00:29:23,280
Speaker 2: capability centers, not just for back office operations, which are

534
00:29:23,280 --> 00:29:28,160
Speaker 2: sort of low value added, but increasingly high level design work, R&D,

535
00:29:28,560 --> 00:29:32,599
Speaker 2: you know, very high value added, uh, very good jobs, so.

536
00:29:33,170 --> 00:29:38,209
Speaker 2: The budget itself again has targeted initiatives for for certain

537
00:29:38,209 --> 00:29:41,609
Speaker 2: sectors in the services. I guess the most notable is

538
00:29:41,609 --> 00:29:45,969
Speaker 2: that foreign companies providing cloud services to global customers through

539
00:29:45,969 --> 00:29:50,890
Speaker 2: domestic data centers get a tax holiday till 2047. There

540
00:29:50,890 --> 00:29:53,650
Speaker 2: are also some provisions reducing the amount of paperwork for

541
00:29:53,650 --> 00:29:58,089
Speaker 2: GCCs to provide service for global clients, and these are

542
00:29:58,089 --> 00:29:59,550
Speaker 2: both excellent measures.

543
00:30:00,130 --> 00:30:02,890
Speaker 2: You know, both given the increasing importance of the digital

544
00:30:02,890 --> 00:30:06,719
Speaker 2: economy and more generally the role of service-led exports, which,

545
00:30:06,729 --> 00:30:09,089
Speaker 2: as I said, is becoming a very critical part of

546
00:30:09,089 --> 00:30:11,869
Speaker 2: our balance of payments. But that said,

547
00:30:12,560 --> 00:30:16,000
Speaker 2: The same fundamental point that I made about manufacturing also

548
00:30:16,000 --> 00:30:20,560
Speaker 2: applies to services, so general reforms to ease entrepreneurship and

549
00:30:20,560 --> 00:30:23,800
Speaker 2: job creation across the board, in my view, are much

550
00:30:23,800 --> 00:30:27,880
Speaker 2: more important than industry-specific SOPs. So to take, you know,

551
00:30:28,030 --> 00:30:31,839
Speaker 2: we were just talking about labor codes notification, state level

552
00:30:31,839 --> 00:30:35,359
Speaker 2: implementation of the new labor codes is of much greater

553
00:30:35,359 --> 00:30:38,280
Speaker 2: importance to the services sector than anything in this budget.

554
00:30:40,050 --> 00:30:44,459
Speaker 1: Very good. Um, so I fully agree with you that

555
00:30:44,459 --> 00:30:47,699
Speaker 1: a lot of these reforms, whether they happen at the

556
00:30:47,699 --> 00:30:51,020
Speaker 1: grassroots level through the states, is perhaps more critical than

557
00:30:51,260 --> 00:30:53,819
Speaker 1: the big announcements on budget day and the discussions the

558
00:30:53,819 --> 00:30:56,699
Speaker 1: weeks after. So the other 364 days are critical.

559
00:30:57,099 --> 00:31:00,349
Speaker 1: Um, Shekhar, you have written extensively over the course of

560
00:31:00,349 --> 00:31:05,180
Speaker 1: your career on geoeconomic fragmentation, especially the last few years. Uh,

561
00:31:05,750 --> 00:31:08,790
Speaker 1: put that thesis that you have, that, you know, how

562
00:31:08,790 --> 00:31:12,069
Speaker 1: sort of this forces of fragmentation is sort of ruinous

563
00:31:12,069 --> 00:31:16,430
Speaker 1: for trade and commerce and by extension, sort of, you know.

564
00:31:17,010 --> 00:31:21,569
Speaker 1: Ruining growth potential or profitability potential contextualize all of those

565
00:31:21,569 --> 00:31:23,209
Speaker 1: things that you have been sort of working on with

566
00:31:23,209 --> 00:31:26,209
Speaker 1: the recent trade deals that India has been embarking upon

567
00:31:26,209 --> 00:31:28,930
Speaker 1: whether it is EU or UK or for that matter,

568
00:31:28,969 --> 00:31:30,089
Speaker 1: the deal with the US.

569
00:31:31,469 --> 00:31:34,650
Speaker 2: OK, uh, so, you know, very encouraging developments. Let me

570
00:31:34,650 --> 00:31:37,599
Speaker 2: start with the EU FTA, OK, so I think here

571
00:31:37,599 --> 00:31:41,510
Speaker 2: the critical thing is that for years, our competitors, countries

572
00:31:41,510 --> 00:31:45,709
Speaker 2: like Bangladesh and Vietnam, have enjoyed preferential access to the

573
00:31:45,709 --> 00:31:49,390
Speaker 2: European market that India has lacked. And these are precisely

574
00:31:49,390 --> 00:31:52,430
Speaker 2: the kind of labor intensive sectors which we want to

575
00:31:52,430 --> 00:31:55,150
Speaker 2: build up and become like a jobs factory for India,

576
00:31:55,270 --> 00:31:57,310
Speaker 2: sectors like apparel and footwear.

577
00:31:57,810 --> 00:32:01,180
Speaker 2: Now, earlier on, countries like Bangladesh and Vietnam had something

578
00:32:01,180 --> 00:32:04,839
Speaker 2: like a 10 to 17% tariff advantage over India, depending

579
00:32:04,839 --> 00:32:08,609
Speaker 2: on which line you were talking about precisely. That playing field,

580
00:32:08,839 --> 00:32:13,160
Speaker 2: according to the EU India FTA has been leveled. So

581
00:32:13,160 --> 00:32:16,880
Speaker 2: this offers Indian producers a tremendous opportunity in precisely the

582
00:32:16,880 --> 00:32:19,880
Speaker 2: kind of jobs rich manufacturing jobs that we would like

583
00:32:19,880 --> 00:32:20,839
Speaker 2: to get developing.

584
00:32:21,180 --> 00:32:25,540
Speaker 2: Um, my colleague Sumitro Chatterjee at Johns Hopkins has done

585
00:32:25,540 --> 00:32:30,060
Speaker 2: some calculations where what he does is he looks at countries'

586
00:32:30,060 --> 00:32:34,619
Speaker 2: market share in Europe for low-skilled manufacturing goods relative to

587
00:32:34,619 --> 00:32:37,219
Speaker 2: their labor incomes, and the results.

588
00:32:37,349 --> 00:32:41,280
Speaker 2: Very interesting. So Vietnam and Bangladesh are exporting. Their export

589
00:32:41,280 --> 00:32:44,630
Speaker 2: share in the EU is about equal to their potential,

590
00:32:44,810 --> 00:32:50,189
Speaker 2: given the, given their labor force characteristics. China exports 18%

591
00:32:51,530 --> 00:32:53,349
Speaker 2: to 20% more.

592
00:32:53,800 --> 00:32:59,939
Speaker 2: Than suggested by its labor force characteristics, India exports about 18% less,

593
00:33:00,270 --> 00:33:04,239
Speaker 2: giving us a headroom of about 160 billion, which we

594
00:33:04,239 --> 00:33:06,239
Speaker 2: should be able to achieve simply by living up to

595
00:33:06,239 --> 00:33:09,390
Speaker 2: our potential, not even overshooting, but simply meeting the potential

596
00:33:09,390 --> 00:33:10,239
Speaker 2: that we already have.

597
00:33:10,699 --> 00:33:14,739
Speaker 2: So the opportunity is large and obvious, but at this

598
00:33:14,739 --> 00:33:18,010
Speaker 2: stage it's only an opportunity, right? We'll need to do

599
00:33:18,010 --> 00:33:21,280
Speaker 2: a lot of other things right in order to realize

600
00:33:21,280 --> 00:33:24,709
Speaker 2: the full potential of this and other FDAs, um.

601
00:33:25,439 --> 00:33:28,050
Speaker 2: And here, let me, I, I guess I'm repeating myself,

602
00:33:28,130 --> 00:33:32,209
Speaker 2: but you know, remember that imports are the lifeblood of exports.

603
00:33:32,530 --> 00:33:36,530
Speaker 2: To develop into an export powerhouse, we must ensure easy

604
00:33:36,530 --> 00:33:39,560
Speaker 2: and cheap access to high quality inputs from all around

605
00:33:39,560 --> 00:33:42,729
Speaker 2: the world, and yet our import regime is among the

606
00:33:42,729 --> 00:33:44,530
Speaker 2: world's most complex and burdensome.

607
00:33:45,300 --> 00:33:49,300
Speaker 2: Um, you know, consider for a minute the UK FTA, OK?

608
00:33:49,699 --> 00:33:55,209
Speaker 2: The UK schedule in that FDA has 3 categories zero duty, excluded,

609
00:33:55,540 --> 00:33:59,479
Speaker 2: or quota-based access. India's schedule has more than 20.

610
00:34:00,790 --> 00:34:03,280
Speaker 2: If you look at our MFN tariff schedule, it's full

611
00:34:03,280 --> 00:34:07,800
Speaker 2: of exceptions and conditionalities and includes more than 140 unique

612
00:34:07,800 --> 00:34:08,638
Speaker 2: tariff rates.

613
00:34:09,399 --> 00:34:11,529
Speaker 2: So you know this is the kind of complexity that

614
00:34:11,530 --> 00:34:17,449
Speaker 2: invites disputes, delays, uh, you know, standards issues. I'll give

615
00:34:17,449 --> 00:34:22,449
Speaker 2: you another example. Volkswagen was recently asked to pay $1.4

616
00:34:22,449 --> 00:34:26,310
Speaker 2: billion in fines because it imported auto parts in separate

617
00:34:26,310 --> 00:34:30,239
Speaker 2: consignments taxed at 5 to 15% rather than as a

618
00:34:30,239 --> 00:34:33,260
Speaker 2: single shipment, which would have been taxed at over 30%.

619
00:34:34,590 --> 00:34:37,189
Speaker 2: So, you know, from the firm's perspective, this is very

620
00:34:37,189 --> 00:34:42,750
Speaker 2: intelligent and rational tariff design. From the authority's perspective, it's

621
00:34:42,750 --> 00:34:43,469
Speaker 2: tax evasion.

622
00:34:44,060 --> 00:34:48,590
Speaker 2: You know, either way, the problem is that complexity damages credibility,

623
00:34:48,669 --> 00:34:51,509
Speaker 2: and you know, if we learn this lesson with the

624
00:34:51,510 --> 00:34:55,270
Speaker 2: Goods and Services Tax, which was recently rationalized, there is

625
00:34:55,270 --> 00:34:57,709
Speaker 2: no reason why we cannot apply the same logic to

626
00:34:57,709 --> 00:35:03,860
Speaker 2: tariffs and seek to radically, uh, you know, simplify our tariff, uh, the,

627
00:35:03,909 --> 00:35:07,330
Speaker 2: the whole system. It needs to be rationalized and simplified,

628
00:35:07,469 --> 00:35:09,779
Speaker 2: quite apart from the fact that the level needs to

629
00:35:09,780 --> 00:35:10,320
Speaker 2: be brought.

630
00:35:10,909 --> 00:35:13,629
Speaker 2: We should take advantage of all these free trade deals

631
00:35:13,629 --> 00:35:16,029
Speaker 2: that we are signing to do these things which we

632
00:35:16,030 --> 00:35:16,590
Speaker 2: should have been

633
00:35:16,590 --> 00:35:17,428
Speaker 2: doing anyway.

634
00:35:18,699 --> 00:35:21,350
Speaker 1: Trigger a little, uh, sort of, you know, differentiation between

635
00:35:21,350 --> 00:35:24,889
Speaker 1: sort of the tone of the EU-India deal and the

636
00:35:25,270 --> 00:35:28,949
Speaker 1: USIndia deal. The EU clearly wants its companies to have

637
00:35:28,949 --> 00:35:31,860
Speaker 1: greater access to Indian markets, but at the same time,

638
00:35:32,189 --> 00:35:35,719
Speaker 1: they're making a bunch of carrots available for India, not

639
00:35:35,719 --> 00:35:37,429
Speaker 1: just on trade, but also on immigration.

640
00:35:37,750 --> 00:35:40,509
Speaker 1: The US is doing very little of that and the

641
00:35:40,510 --> 00:35:44,729
Speaker 1: tone is of course far more blustery and confrontational. Uh,

642
00:35:44,870 --> 00:35:48,500
Speaker 1: how do you see the India-US trade relationship going forward, uh,

643
00:35:48,510 --> 00:35:51,549
Speaker 1: given the announcements and the sort of details that we've

644
00:35:51,550 --> 00:35:52,169
Speaker 1: seen so far?

645
00:35:53,570 --> 00:35:55,409
Speaker 2: Well, I think that's the rub of the matter. We

646
00:35:55,409 --> 00:35:58,770
Speaker 2: haven't really seen any, you know, there's much more uncertainty

647
00:35:58,770 --> 00:36:02,929
Speaker 2: about the US FDA. There's much less information on the

648
00:36:02,929 --> 00:36:05,209
Speaker 2: EU FTA. We have a good idea of what the

649
00:36:05,209 --> 00:36:07,850
Speaker 2: final agreement is going to look like. Not so for

650
00:36:07,850 --> 00:36:10,729
Speaker 2: the US. And also, in addition, as you know, there

651
00:36:10,729 --> 00:36:15,169
Speaker 2: is the Supreme Court judgment hanging over President Trump's power to.

652
00:36:15,419 --> 00:36:18,709
Speaker 2: Impose reciprocal tariffs to begin with, at least using the

653
00:36:18,709 --> 00:36:22,629
Speaker 2: instruments that he's been adopted. So there's a lot of uncertainty.

654
00:36:22,899 --> 00:36:26,419
Speaker 2: But look, in principle, to the extent that the reciprocal

655
00:36:26,419 --> 00:36:31,340
Speaker 2: tariff of 50% has been reduced to 18%, that's much better.

656
00:36:31,600 --> 00:36:33,870
Speaker 2: And again, it means that the playing field has been

657
00:36:33,870 --> 00:36:36,949
Speaker 2: leveled with Vietnam and Bangladesh in labor intensive sectors.

658
00:36:37,379 --> 00:36:40,459
Speaker 2: If you look at the joint statement issued by the

659
00:36:40,459 --> 00:36:44,739
Speaker 2: US and India, it also specifically mentions many industries which

660
00:36:44,739 --> 00:36:49,100
Speaker 2: are important to India like pharmaceuticals and gyms. So you

661
00:36:49,100 --> 00:36:52,939
Speaker 2: know that that's the good part. The agreement also commits

662
00:36:52,939 --> 00:36:53,658
Speaker 2: India to lower.

663
00:36:53,814 --> 00:36:58,314
Speaker 2: A number of non-tariff barriers like import licensing and redundant

664
00:36:58,314 --> 00:37:01,634
Speaker 2: testing requirements. While this may be viewed as a concession

665
00:37:01,635 --> 00:37:04,114
Speaker 2: that India is making to the US, in my view,

666
00:37:04,175 --> 00:37:06,435
Speaker 2: it's fantastic, and we should have been doing it anyway,

667
00:37:06,554 --> 00:37:09,314
Speaker 2: so we should very much welcome that concession made to

668
00:37:09,314 --> 00:37:09,854
Speaker 2: the US.

669
00:37:10,610 --> 00:37:14,639
Speaker 2: But my big concern, coming back to, you know, geoeconomic

670
00:37:14,639 --> 00:37:17,320
Speaker 2: fragmentation and what we were talking about a minute earlier,

671
00:37:17,600 --> 00:37:22,239
Speaker 2: is that this FTA might seek to circumscribe our engagement

672
00:37:22,239 --> 00:37:25,320
Speaker 2: with other economies around the world. So, you know, there's

673
00:37:25,320 --> 00:37:28,179
Speaker 2: already been a lot of reporting on Russian oil. So

674
00:37:28,439 --> 00:37:31,718
Speaker 2: President Trump initially posted that India has committed to stop

675
00:37:31,719 --> 00:37:34,360
Speaker 2: buying Russian oil. Now there's no mention of that in

676
00:37:34,360 --> 00:37:36,879
Speaker 2: the joint statement, and India has not made any such

677
00:37:36,879 --> 00:37:38,080
Speaker 2: commitment publicly.

678
00:37:38,429 --> 00:37:42,600
Speaker 2: Um, you know, the joint statement also contains a reference

679
00:37:42,600 --> 00:37:47,879
Speaker 2: to actions to address the non-market policies of third countries. So,

680
00:37:47,899 --> 00:37:50,409
Speaker 2: you know, this is a not so subtle reference to China.

681
00:37:51,159 --> 00:37:55,050
Speaker 2: In my view, we should strive to maintain our freedom

682
00:37:55,050 --> 00:37:58,560
Speaker 2: of action vis a vis Russia, China, and every other

683
00:37:58,560 --> 00:38:02,419
Speaker 2: country in the world and not let ourselves become subject

684
00:38:02,419 --> 00:38:05,919
Speaker 2: to coercion or pressure from one particular country which wants

685
00:38:05,919 --> 00:38:10,080
Speaker 2: an exclusive relationship. You know, although the multilateral trading system

686
00:38:10,080 --> 00:38:11,779
Speaker 2: is currently in disarray.

687
00:38:12,042 --> 00:38:14,843
Speaker 2: And if you look at the adjudication body of the WTO,

688
00:38:14,922 --> 00:38:18,802
Speaker 2: the appellate body, it's defunct because the US for many years,

689
00:38:18,883 --> 00:38:22,442
Speaker 2: it actually started under the Biden administration, has been refusing

690
00:38:22,443 --> 00:38:26,072
Speaker 2: to appoint judges to the appellate body. But that said,

691
00:38:26,202 --> 00:38:28,962
Speaker 2: we should still strive to make sure that whatever FTAs

692
00:38:28,962 --> 00:38:32,741
Speaker 2: we sign are consistent with the multilateral spirit of the WTA.

693
00:38:33,805 --> 00:38:36,446
Speaker 2: You know, for too long, India has been a backbencher

694
00:38:36,446 --> 00:38:38,525
Speaker 2: when it comes to setting the rules of the multilateral

695
00:38:38,525 --> 00:38:41,844
Speaker 2: trading system. We are now large enough and powerful enough

696
00:38:41,844 --> 00:38:44,605
Speaker 2: and attractive enough as a trade partner to be one

697
00:38:44,605 --> 00:38:48,085
Speaker 2: of the founding members of the next avatar of multilateralism,

698
00:38:48,364 --> 00:38:50,325
Speaker 2: and a good step in that direction would be to

699
00:38:50,325 --> 00:38:52,844
Speaker 2: be very careful about the spirit of the FTAs that

700
00:38:52,844 --> 00:38:53,686
Speaker 2: we signed today.

701
00:38:54,189 --> 00:38:56,949
Speaker 2: So in my view, close partnership with any given trading

702
00:38:56,949 --> 00:39:00,509
Speaker 2: partner is always welcome, but not any action that seeks

703
00:39:00,510 --> 00:39:03,189
Speaker 2: to put us in a particular camp and restrict our

704
00:39:03,189 --> 00:39:07,379
Speaker 2: dealings with rival camps. You know, I've already spoken to

705
00:39:07,379 --> 00:39:11,029
Speaker 2: you last time about the kind of calculations that various

706
00:39:11,030 --> 00:39:12,109
Speaker 2: economists have done.

707
00:39:12,310 --> 00:39:16,469
Speaker 2: On the costs of geoeconomic fragmentation, and you know they

708
00:39:16,469 --> 00:39:18,979
Speaker 2: remain as large as they were when we last talked,

709
00:39:19,070 --> 00:39:21,189
Speaker 2: so we should make every effort to avoid

710
00:39:21,189 --> 00:39:21,428
Speaker 2: it.

711
00:39:21,750 --> 00:39:25,830
Speaker 1: Absolutely, Shankar, I'll give you one example, sort of, you know,

712
00:39:25,949 --> 00:39:28,750
Speaker 1: that may not be seen very clearly from the Indian side,

713
00:39:28,860 --> 00:39:30,270
Speaker 1: but when one looks at the

714
00:39:30,550 --> 00:39:34,629
Speaker 1: India, US, and Bangladesh-US trade deals side by side, one

715
00:39:34,629 --> 00:39:37,469
Speaker 1: sees some jeopardy that could befall Indian exporters. I'll give

716
00:39:37,469 --> 00:39:41,620
Speaker 1: you an example. The US will allow duty-free exports of

717
00:39:41,620 --> 00:39:45,850
Speaker 1: textile from Bangladesh into the US provided Bangladesh imports US cotton.

718
00:39:46,389 --> 00:39:49,149
Speaker 1: Where does Bangladesh import cotton from now? India. So as

719
00:39:49,149 --> 00:39:49,669
Speaker 1: you can see.

720
00:39:49,780 --> 00:39:52,679
Speaker 1: These sort of third market spillovers and, and sort of

721
00:39:52,939 --> 00:39:56,090
Speaker 1: forcing one country to, you know, deal with another country,

722
00:39:56,139 --> 00:39:59,379
Speaker 1: but at the same time, you know, having other uh implications. I,

723
00:39:59,419 --> 00:40:02,399
Speaker 1: I find quite disturbing and really sort of infringes on countries'

724
00:40:02,399 --> 00:40:04,739
Speaker 1: sovereignty and the Bangladesh should be free to import cotton

725
00:40:04,739 --> 00:40:07,100
Speaker 1: from whoever they want. But in this case, to get

726
00:40:07,100 --> 00:40:08,939
Speaker 1: access to the US, it has to be US cotton.

727
00:40:09,659 --> 00:40:11,899
Speaker 2: Yeah, I couldn't agree more. That's a great illustration of

728
00:40:11,899 --> 00:40:13,479
Speaker 2: the point I was trying to make. Yeah,

729
00:40:13,649 --> 00:40:16,699
Speaker 1: absolutely. Uh, Shaker, uh, one conjunctural discussion, because, you know,

730
00:40:16,780 --> 00:40:20,979
Speaker 1: trade related discussions are just not about tariffs, it's about competitiveness,

731
00:40:21,020 --> 00:40:24,339
Speaker 1: and one aspect about competitiveness is the currency. Uh, we

732
00:40:24,340 --> 00:40:27,570
Speaker 1: are having this discussion in the first quarter of 2026, uh,

733
00:40:27,820 --> 00:40:30,379
Speaker 1: the year of 2025 when the Indian economy was doing

734
00:40:30,379 --> 00:40:33,659
Speaker 1: pretty well, but the rupee was fairly lackluster and has

735
00:40:33,659 --> 00:40:35,169
Speaker 1: faced some degree of volatility in.

736
00:40:35,600 --> 00:40:39,280
Speaker 1: Recent months. Um, so we've talked about rather big structural issues,

737
00:40:39,340 --> 00:40:41,120
Speaker 1: but I just want to focus on them for a second,

738
00:40:41,159 --> 00:40:42,459
Speaker 1: if I may. What's your sense?

739
00:40:43,939 --> 00:40:46,219
Speaker 2: Look, we should not be worrying about the level of

740
00:40:46,219 --> 00:40:49,259
Speaker 2: the rupee, right, we should let it float. And in fact,

741
00:40:49,290 --> 00:40:52,218
Speaker 2: it's very heartening to see the RBI governor recently coming

742
00:40:52,219 --> 00:40:54,779
Speaker 2: out and stating in no uncertain terms that the central

743
00:40:54,780 --> 00:40:58,379
Speaker 2: bank does not target a particular value for the exchange rate.

744
00:40:58,659 --> 00:40:59,919
Speaker 2: I think that's bang on.

745
00:41:00,290 --> 00:41:03,129
Speaker 2: So it's very important not to conflate, as some people do,

746
00:41:03,209 --> 00:41:06,090
Speaker 2: a strong rupee with a strong economy. You know, so

747
00:41:06,090 --> 00:41:08,929
Speaker 2: the exchange rate acts as a shock absorber. It allows

748
00:41:08,929 --> 00:41:13,370
Speaker 2: adjustments to occur along this essentially monetary margin rather than

749
00:41:13,370 --> 00:41:15,689
Speaker 2: much more painful adjustments in the real economy.

750
00:41:16,290 --> 00:41:18,870
Speaker 2: Uh, the other thing to remember is that inflation in India,

751
00:41:19,330 --> 00:41:22,049
Speaker 2: you know, because we are an emerging market, is structurally

752
00:41:22,050 --> 00:41:26,520
Speaker 2: higher than that in many of our advanced country trade partners.

753
00:41:26,889 --> 00:41:31,159
Speaker 2: So it's only natural for some depreciation to occur naturally.

754
00:41:31,449 --> 00:41:34,209
Speaker 2: This is simply, you know, what, uh, we learned in

755
00:41:34,209 --> 00:41:38,879
Speaker 2: grad school as we uncovered interest rate parity. Um, to,

756
00:41:38,929 --> 00:41:41,760
Speaker 2: to give you one example, consider our exchange rate against China.

757
00:41:42,570 --> 00:41:45,889
Speaker 2: Although the rupee has depreciated in nominal terms against the

758
00:41:45,889 --> 00:41:49,810
Speaker 2: renminbi by about 15% since the pandemic, China is currently

759
00:41:49,810 --> 00:41:52,719
Speaker 2: undergoing deflation as a result of weak demand and the

760
00:41:52,719 --> 00:41:54,850
Speaker 2: fallout from the property sector. So if you look at

761
00:41:54,850 --> 00:41:57,360
Speaker 2: real effective terms, the rupee has in fact appreciated against

762
00:41:57,360 --> 00:41:58,169
Speaker 2: the renminbi.

763
00:41:58,260 --> 00:42:01,699
Speaker 2: By about 10% since the pandemic. So seeking to further

764
00:42:01,699 --> 00:42:05,779
Speaker 2: strengthen the rupee for whatever misplaced notions of national pride

765
00:42:05,780 --> 00:42:10,179
Speaker 2: one might have would artificially support Chinese exports to India

766
00:42:10,419 --> 00:42:12,459
Speaker 2: at a time when there is already some unease about

767
00:42:12,459 --> 00:42:14,020
Speaker 2: the bilateral deficit with China.

768
00:42:14,449 --> 00:42:17,250
Speaker 2: So that's just one example, you know, there are many more,

769
00:42:17,330 --> 00:42:21,408
Speaker 2: but the general principle is we should strive to keep the,

770
00:42:21,489 --> 00:42:24,129
Speaker 2: the level of the rupee kind of separate from other

771
00:42:24,129 --> 00:42:27,370
Speaker 2: policy discussions that we have and allow it to act

772
00:42:27,370 --> 00:42:28,810
Speaker 2: as a natural shock absorber.

773
00:42:29,560 --> 00:42:31,719
Speaker 1: Very, very well said, Shikar. Uh, last April, I was

774
00:42:31,719 --> 00:42:36,840
Speaker 1: in Washington DC during the IIF meetings, and the Treasury Secretary, uh,

775
00:42:36,850 --> 00:42:40,479
Speaker 1: Scott Besson talked about what he thought was a right

776
00:42:40,479 --> 00:42:43,520
Speaker 1: dollar policy. As you know, US government in the past,

777
00:42:43,679 --> 00:42:45,799
Speaker 1: the Treasury Secretaries have always sort of advocated a strong

778
00:42:45,800 --> 00:42:49,439
Speaker 1: dollar policy, but in this current administration, there's some voices

779
00:42:49,439 --> 00:42:50,439
Speaker 1: which sort of are going.

780
00:42:50,514 --> 00:42:52,745
Speaker 1: For a weak dollar policy. So Besson's point, I think,

781
00:42:52,754 --> 00:42:54,745
Speaker 1: was a good middle ground. He said that to him,

782
00:42:54,875 --> 00:42:58,354
Speaker 1: strong dollar means the US economy remains attractive, and US

783
00:42:58,354 --> 00:43:00,995
Speaker 1: dollar assets are attractive for foreign investors. So I think

784
00:43:00,995 --> 00:43:02,715
Speaker 1: the same thing with India. As long as, you know,

785
00:43:02,804 --> 00:43:06,504
Speaker 1: India is an attractive investment destination, both for Indian corporates

786
00:43:06,504 --> 00:43:08,675
Speaker 1: as well as foreign corporates, I think the level of

787
00:43:08,675 --> 00:43:11,654
Speaker 1: the rupee should be just left to the market's device.

788
00:43:12,114 --> 00:43:13,915
Speaker 1: Investors will figure that out on their own.

789
00:43:14,250 --> 00:43:17,899
Speaker 1: Um, OK, so through this conversation, a few times we

790
00:43:17,899 --> 00:43:19,959
Speaker 1: have brought up the word China. And you know, the

791
00:43:19,959 --> 00:43:22,060
Speaker 1: China story, in my view, and I think you concur

792
00:43:22,060 --> 00:43:24,699
Speaker 1: with me, is an absolutely fascinating one. The country sort

793
00:43:24,699 --> 00:43:29,300
Speaker 1: of going through a huge of tech-led, uh, growth path, uh,

794
00:43:29,379 --> 00:43:33,139
Speaker 1: whereas even till very recent past, it was the old

795
00:43:33,139 --> 00:43:36,459
Speaker 1: school cheap manufacturing, scaling up and so on. So as

796
00:43:36,459 --> 00:43:38,959
Speaker 1: China sort of shifts from producing.

797
00:43:39,939 --> 00:43:43,859
Speaker 1: Large scale uh goods in the manufacturing, medium and low-end

798
00:43:43,860 --> 00:43:46,739
Speaker 1: sector to move up the higher end of the technological ladder.

799
00:43:47,139 --> 00:43:49,959
Speaker 1: What should India's strategy be vis a vis China?

800
00:43:51,030 --> 00:43:54,860
Speaker 2: We should seek to engage, you know, first on geoeconomic grounds,

801
00:43:55,050 --> 00:43:58,030
Speaker 2: we need to seek diversification. So if you look at

802
00:43:58,030 --> 00:44:00,750
Speaker 2: our trade with China, it's very small compared to other

803
00:44:00,750 --> 00:44:03,469
Speaker 2: parts of the world. We should seek to increase it. Secondly,

804
00:44:03,699 --> 00:44:06,270
Speaker 2: China has got lots of stuff that we will really need,

805
00:44:06,510 --> 00:44:10,029
Speaker 2: including for our green transition. And more broadly, just kind

806
00:44:10,030 --> 00:44:12,110
Speaker 2: of stepping away from the conjuncture.

807
00:44:12,810 --> 00:44:16,050
Speaker 2: I think that the 21st century has the potential to

808
00:44:16,050 --> 00:44:18,969
Speaker 2: be the century of the two Asian giants, China and India,

809
00:44:19,050 --> 00:44:22,409
Speaker 2: so we should seek every opportunity to deepen our relationship

810
00:44:22,409 --> 00:44:25,949
Speaker 2: with them, of course, subject to security considerations.

811
00:44:27,639 --> 00:44:32,158
Speaker 2: My ICRO colleagues, uh Nisha Taneja and Sanjana Joshi, have

812
00:44:32,159 --> 00:44:35,399
Speaker 2: recently written an excellent policy brief about how best to

813
00:44:35,399 --> 00:44:40,199
Speaker 2: engage with China, which outlines several strategies. And an interesting

814
00:44:40,199 --> 00:44:42,280
Speaker 2: thing they say, you're, so, you know, you're, you're aware,

815
00:44:42,290 --> 00:44:46,080
Speaker 2: of course, that we have an enormous bilateral deficit with China,

816
00:44:46,320 --> 00:44:49,479
Speaker 2: and this causes a lot of heartburn among our policymakers.

817
00:44:49,850 --> 00:44:53,989
Speaker 2: The biggest problem apparently is not so much tariffs that

818
00:44:53,989 --> 00:44:57,629
Speaker 2: Chinese put on Indian imports, but non-tariff barriers. So in particular,

819
00:44:57,709 --> 00:45:01,209
Speaker 2: if you talk to pharmaceutical business people in India, they,

820
00:45:01,310 --> 00:45:04,189
Speaker 2: they say that China does not permit retesting by third

821
00:45:04,189 --> 00:45:08,739
Speaker 2: party labs if products fail some kind of initial random sampling,

822
00:45:09,070 --> 00:45:14,330
Speaker 2: which means that the testing lab's decision is final, uh, non-transparent,

823
00:45:14,350 --> 00:45:15,469
Speaker 2: and non-appealable.

824
00:45:15,969 --> 00:45:18,939
Speaker 2: Another major impediment that Indian exporters face is the lack

825
00:45:18,939 --> 00:45:23,040
Speaker 2: of information on regulatory and documentary requirements, which are often

826
00:45:23,040 --> 00:45:26,899
Speaker 2: only present in Mandarin, and we don't have enough Chinese

827
00:45:26,899 --> 00:45:29,979
Speaker 2: speakers who can penetrate those documents and figure out what

828
00:45:29,979 --> 00:45:32,620
Speaker 2: are the right procedures to be following. So a lot

829
00:45:32,620 --> 00:45:37,459
Speaker 2: of NTBs rather than tariff barriers, and this is something

830
00:45:37,459 --> 00:45:40,300
Speaker 2: that could in principle be solved quite easily if there's

831
00:45:40,300 --> 00:45:41,419
Speaker 2: goodwill on both sides.

832
00:45:41,524 --> 00:45:44,975
Speaker 2: So the, the suggestion that my colleagues at ICTREA make

833
00:45:44,975 --> 00:45:47,675
Speaker 2: is that we should have a high level joint task

834
00:45:47,675 --> 00:45:52,185
Speaker 2: force of trade and technical experts which would facilitate, you know,

835
00:45:52,435 --> 00:45:58,475
Speaker 2: the sharing of trade related information, regulations, translations, and then

836
00:45:58,475 --> 00:46:02,574
Speaker 2: kind of monitor and resolve non-tariff barriers through regular consultations

837
00:46:02,754 --> 00:46:06,924
Speaker 2: and perhaps some kind of joint testing facilities, so.

838
00:46:07,479 --> 00:46:10,250
Speaker 2: That's on the trade side. We should also be inviting

839
00:46:10,250 --> 00:46:13,449
Speaker 2: much more FDI from China, which is now the global

840
00:46:13,449 --> 00:46:16,928
Speaker 2: technology leader in many industries, including in green technology. This

841
00:46:16,929 --> 00:46:19,489
Speaker 2: would simply be repeating the kind of successes that China

842
00:46:19,489 --> 00:46:22,260
Speaker 2: had in its not so distant past when it was

843
00:46:22,260 --> 00:46:26,569
Speaker 2: inviting FDI into China, uh, with an explicit eye on

844
00:46:26,570 --> 00:46:29,610
Speaker 2: using that investment to move up the technological ladder itself.

845
00:46:29,689 --> 00:46:32,270
Speaker 2: There's no reason why we cannot replicate that strategy.

846
00:46:32,750 --> 00:46:35,600
Speaker 2: In fact, there's a, there's a recent very illuminating paper

847
00:46:35,600 --> 00:46:39,509
Speaker 2: by Rakesh Mohan and Janak Raj, which really underlines the

848
00:46:39,510 --> 00:46:42,989
Speaker 2: case for much greater engagement with China on macroeconomic grounds

849
00:46:42,989 --> 00:46:46,870
Speaker 2: related to the green transition. So they do something quite interesting. They,

850
00:46:46,969 --> 00:46:50,149
Speaker 2: they do some calculations on India's climate financing needs for

851
00:46:50,149 --> 00:46:53,949
Speaker 2: meeting our own net zero commitments, and they find that

852
00:46:53,949 --> 00:46:56,509
Speaker 2: until 2030, there will need to be an inflow of

853
00:46:56,510 --> 00:47:01,149
Speaker 2: foreign capital for financing the transition of about 1.4% of

854
00:47:01,149 --> 00:47:01,689
Speaker 2: GDP and.

855
00:47:01,854 --> 00:47:05,424
Speaker 2: Annually net of the current account deficit. But then when

856
00:47:05,425 --> 00:47:07,985
Speaker 2: you look at India's capacity to manage this kind of

857
00:47:07,985 --> 00:47:13,014
Speaker 2: inflow without drastically expanding our monetary base and incurring inflation,

858
00:47:13,504 --> 00:47:15,784
Speaker 2: this is only possible through a combination of a larger

859
00:47:15,784 --> 00:47:18,705
Speaker 2: current account deficit and an increased domestic savings rate.

860
00:47:19,389 --> 00:47:22,909
Speaker 2: So this is just a complicated macroeconomic lens of saying

861
00:47:22,909 --> 00:47:24,959
Speaker 2: something which is quite simple, which is to meet our

862
00:47:24,959 --> 00:47:28,629
Speaker 2: climate goals, we will need to expand our imports, specifically

863
00:47:28,629 --> 00:47:31,750
Speaker 2: imports that are needed for the green transition, where China

864
00:47:31,750 --> 00:47:35,070
Speaker 2: has a tremendous cost advantage over other countries. So, you know,

865
00:47:35,189 --> 00:47:38,709
Speaker 2: take battery storage technology. This is going to become increasingly

866
00:47:38,709 --> 00:47:42,989
Speaker 2: important for India as we integrate renewable energy sources into

867
00:47:42,989 --> 00:47:46,189
Speaker 2: our grid, and China is the world's most efficient producer

868
00:47:46,189 --> 00:47:47,169
Speaker 2: of this technology.

869
00:47:47,679 --> 00:47:49,520
Speaker 2: So in other words, if we are serious about meeting

870
00:47:49,520 --> 00:47:52,040
Speaker 2: our own net zero targets, then greater trade with China

871
00:47:52,040 --> 00:47:52,679
Speaker 2: is inevitable.

872
00:47:53,100 --> 00:47:56,540
Speaker 2: So we should take advantage of the post-Galwantha that we

873
00:47:56,540 --> 00:48:00,419
Speaker 2: currently have to try to greatly increase our engagement in

874
00:48:00,419 --> 00:48:03,340
Speaker 2: terms of trade, in terms of FDI, in terms of

875
00:48:03,340 --> 00:48:06,100
Speaker 2: person to person contacts. We should be, we should be

876
00:48:06,100 --> 00:48:10,100
Speaker 2: striding into the, into, well, we've, we're already in this century,

877
00:48:10,179 --> 00:48:12,178
Speaker 2: but this century is a part that in some sense

878
00:48:12,179 --> 00:48:13,360
Speaker 2: we will need to work together,

879
00:48:13,899 --> 00:48:16,060
Speaker 1: right? Uh, Shekhar, now, of course, I would like to

880
00:48:16,060 --> 00:48:19,010
Speaker 1: think that this century is not just India and China's,

881
00:48:19,020 --> 00:48:22,319
Speaker 1: but also broadly Asia's, which includes Southeast Asia, my region.

882
00:48:22,750 --> 00:48:25,510
Speaker 1: I guess my final question for you is that, you know,

883
00:48:25,629 --> 00:48:28,510
Speaker 1: when I look at an electronics product, it may say

884
00:48:28,510 --> 00:48:30,989
Speaker 1: made in China, designed in US or assembled in India,

885
00:48:31,070 --> 00:48:32,589
Speaker 1: but the fact of the matter is they're actually made

886
00:48:32,590 --> 00:48:37,629
Speaker 1: in Asia. Components from Singapore to Vietnam to Malaysia, Korea, Taiwan,

887
00:48:37,790 --> 00:48:41,529
Speaker 1: the things are moving around, memory chips are displayed. Will

888
00:48:41,540 --> 00:48:44,330
Speaker 1: India become a part of that supply chain? Because right now,

889
00:48:44,510 --> 00:48:46,600
Speaker 1: India is doing a pretty good job of assembling a

890
00:48:46,600 --> 00:48:49,029
Speaker 1: lot of Asian made products.

891
00:48:49,510 --> 00:48:52,169
Speaker 1: But not in history having the OEMs made in India.

892
00:48:52,580 --> 00:48:55,290
Speaker 1: Do you see signs of that transition taking place? And

893
00:48:55,290 --> 00:48:58,000
Speaker 1: also related to that is, you know, that transition would

894
00:48:58,000 --> 00:49:00,439
Speaker 1: require India to become a little more integrated with Southeast Asia.

895
00:49:00,800 --> 00:49:01,699
Speaker 1: Where do we go there?

896
00:49:03,070 --> 00:49:06,468
Speaker 2: So absolutely, this is something which is very necessary, and

897
00:49:06,469 --> 00:49:09,669
Speaker 2: I'm optimistic about our chances of doing this. Let me

898
00:49:09,669 --> 00:49:11,709
Speaker 2: try to, try to say that there are two aspects

899
00:49:11,709 --> 00:49:15,468
Speaker 2: to it, hard infrastructure and soft infrastructure. And we're doing

900
00:49:15,469 --> 00:49:18,689
Speaker 2: very well, as I outlined on the hard infrastructure. If

901
00:49:18,689 --> 00:49:22,270
Speaker 2: you look at the expansion of our port facilities, improvement

902
00:49:22,270 --> 00:49:26,810
Speaker 2: in logistics, airports, highways, all of that stuff is going

903
00:49:26,810 --> 00:49:28,850
Speaker 2: as reasonably well as you can expect.

904
00:49:29,389 --> 00:49:33,669
Speaker 2: What's lagging is the soft infrastructure, the labor laws, the

905
00:49:33,669 --> 00:49:38,219
Speaker 2: land acquisition laws, the kind of regulations that are stifling entrepreneurship,

906
00:49:38,469 --> 00:49:42,709
Speaker 2: the predictability of the tax systems, quality control orders that

907
00:49:42,709 --> 00:49:45,629
Speaker 2: come suddenly and are sort of disguised as a quality

908
00:49:45,629 --> 00:49:48,429
Speaker 2: control measure, but are really kind of responses to vested

909
00:49:48,429 --> 00:49:52,250
Speaker 2: interests complaining about one particular import or the other. These

910
00:49:52,250 --> 00:49:54,908
Speaker 2: are the kinds of things that fundamentally need to be fixed.

911
00:49:54,989 --> 00:49:56,110
Speaker 2: They are not easy to fix.

912
00:49:56,425 --> 00:50:00,425
Speaker 2: They are perhaps less visible than the hard infrastructure projects,

913
00:50:00,534 --> 00:50:03,324
Speaker 2: so it's more difficult to get political credit for progress

914
00:50:03,324 --> 00:50:06,784
Speaker 2: in this area. But there is progress being made in

915
00:50:06,784 --> 00:50:11,125
Speaker 2: this area. The labor codes have been notified. There is,

916
00:50:11,584 --> 00:50:13,905
Speaker 2: you know, there is a Jan Vishwas bill which is

917
00:50:13,905 --> 00:50:16,384
Speaker 2: in the works, which is precisely going to look into

918
00:50:16,385 --> 00:50:20,104
Speaker 2: a lot of these deregulatory and, you know, simplification aspects

919
00:50:20,104 --> 00:50:23,064
Speaker 2: that I've been talking about, which I think are very important.

920
00:50:23,419 --> 00:50:26,300
Speaker 2: And once you've got the hard infrastructure and the soft

921
00:50:26,300 --> 00:50:29,939
Speaker 2: infrastructure working in tandem, then I think it would be

922
00:50:29,939 --> 00:50:33,739
Speaker 2: much easier for India to integrate into the Southeast Asian

923
00:50:33,739 --> 00:50:37,379
Speaker 2: supply chains. We actually have a cost advantage in terms

924
00:50:37,379 --> 00:50:39,739
Speaker 2: of labor, so there's no reason why we should not

925
00:50:39,739 --> 00:50:42,379
Speaker 2: be part of these chains. It is other things that

926
00:50:42,379 --> 00:50:45,580
Speaker 2: are holding us back, and I'm optimistic that these shackles

927
00:50:45,580 --> 00:50:48,100
Speaker 2: which were holding us back are gradually being

928
00:50:48,100 --> 00:50:48,659
Speaker 2: unshattered.

929
00:50:49,409 --> 00:50:51,459
Speaker 1: I share your optimism, Shekhar. Thank you so much for

930
00:50:51,459 --> 00:50:52,479
Speaker 1: your time and insights.

931
00:50:53,459 --> 00:50:55,810
Speaker 2: Thank you very much, Demur. Great pleasure. Thank you for

932
00:50:55,810 --> 00:50:56,459
Speaker 2: having me on

933
00:50:56,459 --> 00:50:56,759
Speaker 2: again.

934
00:50:57,260 --> 00:50:59,290
Speaker 1: Great to have you, sir. I'd like to thank our

935
00:50:59,290 --> 00:51:01,620
Speaker 1: listeners for listening in as well. Kobe Time was produced

936
00:51:01,620 --> 00:51:04,939
Speaker 1: by Ken Delbridge at Spy Studio. Daisy Sharma and Violet

937
00:51:04,939 --> 00:51:09,138
Speaker 1: Lee provided additional assistance. All 172 episodes of the podcast

938
00:51:09,139 --> 00:51:13,340
Speaker 1: are available on Apple, Spotify and YouTube. It is for

939
00:51:13,340 --> 00:51:17,138
Speaker 1: information only and does not constitute any great advice. As

940
00:51:17,139 --> 00:51:19,439
Speaker 1: for our research publications and webinars, you can find them

941
00:51:19,439 --> 00:51:22,699
Speaker 1: all by Googling DBS Research Library. Have a great day.