Genial but sharp, soft-spoken but articulate, V. Anantha Nageswaran has a knack for balancing extremes. The chief economic adviser to the Union government does not see the economy slowing down in the near future, but has already identified factors that would affect it in the long term. In an interview with THE WEEK, he talks about the effects of the Palestine-Israel conflict to India, the debt of the states and the need to prioritise health. Excerpts:
Q/ You said the short-term economic prospects of India were good and growth will be steady in the medium term, but beyond 2030, there would be major challenges. What are the issues that we should address now so that we can sustain the good growth rate?
A/ I believe our current growth rate is sustainable, maintaining a robust average of around 6.5 per cent per annum in real terms until the end of this decade. However, to sustain or even surpass this growth rate afterwards, there are internal challenges that we must address.
A key focus should be on ensuring that education and skilling of young Indians are adequate, making them increasingly employable. While there has been significant improvement―with the employability of graduates rising from one-third to 50 per cent―further enhancements are necessary.
Certain sectors still face skill shortages, indicating that graduates in specific specialisations are not yet job-ready. This aspect requires attention and transformation.
The second is the need for India to prioritise health and fitness. We must learn from the mistakes made by the west. We don’t have to go through the same cycle of learning; we can glean insights from their experiences. It is crucial to avoid repeating the cycle of errors, such as the overconsumption of junk food and sugar-rich beverages, as well as neglecting physical activity. Only a healthy economy can be a productive economy, only a healthy citizen can be a productive citizen.
The third concern is the imperative of ensuring energy security for sustained growth. While the emphasis on renewable energy and energy transition is significant, prioritising energy security takes precedence. If these three things are addressed by all levels of government, not just the Union government, and also by the citizens themselves, then the growth will be sustained.
Externally, we must remain vigilant regarding geopolitical conflicts. The worsening of such conflicts can lead to uncontrollable consequences, including disruptions in trade and the flow of raw materials. We must be prepared to address them as they arise.
Q/ How would the Israel-Palestine conflict impact India’s long-term economic growth plans?
A/ At this stage, I don’t believe it will directly impact us unless there is a significant disruption in global crude oil supplies. Interestingly, over the past month and a half, since tensions escalated between Israel and Hamas, the oil price has decreased. As of November 17, Brent crude, closely linked to the Indian crude oil basket, is just above $80 per barrel. Therefore, asserting that it will significantly impact the Indian economy necessitates making assumptions that may be far-fetched at this stage.
Q/ Are we facing a situation where we are failing to create enough jobs despite high economic growth?
A/ That is not true at all. According to the periodic labour force survey, the unemployment rate for Indian youth has decreased from 17 per cent to 10 per cent. It is perplexing why there is such reluctance to take the periodic labour force survey seriously. India’s overall unemployment rate, which rose during the Covid-19 pandemic, has significantly declined. This improvement is evident in both rural and urban employment, as well as in youth employment. Across these categories, unemployment rates are decreasing and have made substantial progress since the peak of the pandemic. The Indian economy is, indeed, generating jobs. This optimism is reflected in household perceptions of job creation, as indicated by the RBI survey of consumer confidence.
The optimism expressed by households aligns with the eagerness of industries to hire, a sentiment evident in the industrial outlook survey conducted by the Reserve Bank of India. This willingness is further reflected in the job growth of listed companies in India. In the fiscal year 2022, job growth in listed companies stood at about 8 per cent, and in FY23, it was around 5 per cent, accompanied by commendable wage and compensation growth. Contrary to a prevalent misconception, the data affirms that the Indian economy is actively generating employment. The evidence suggests that job creation is on an upward trajectory and is poised to further escalate in the coming years.
Q/ Bibek Debroy, chairman of the Economic Advisory Council to the Prime Minister, recently said the government was losing revenue due to the GST, which should be revenue neutral with a single rate. Do you share his view?
A/ I need to delve into the specifics of what he mentioned because I haven’t had a chance to read the report on the statements made by the EAC PM. When the GST was implemented in 2017, the revenue-neutral rate was closer to 15 per cent. However, it seems to have decreased by about three percentage points now, settling somewhere between 11 per cent and 12 per cent. I believe that was the point he intended to convey. The decrease in the revenue-neutral rate can be attributed to various exemptions, resulting in a lower effective GST rate. And that is a legitimate point to make.
Q/ Many states are neck-deep in debt. How much would you attribute the freebie culture to this situation? Also, some states say that the Union government is trying to undermine their fiscal freedom.
A/ In the larger scheme of things, the GST implemented by states has exhibited a much swifter growth compared to the individual state sales tax revenues of the past. That is why this argument is no longer being raised. Moreover, states retain the authority to impose taxes on property and increase user charges; products like alcohol and petroleum products are still outside the GST framework. Additionally, states possess the flexibility to enhance their fiscal situation by making decisions in areas still under their control. Before raising concerns about their revenue generation scope being curtailed, states should first demonstrate that they have fully utilised and tapped into all potential sources of revenue available to them.
Drawing conclusions about if deficits have widened due to a freebie culture requires a detailed analysis of the specific factors contributing to the increase in debts among certain states. Making off-the-cuff statements is challenging without a comprehensive breakdown of these causes. Generally, the fiscal deficit of state governments is well below 3 per cent, but concerns arise from elevated debt ratios in some states. To address this, it is crucial to investigate the reasons behind the growing debt burden. This includes examining whether it results from a freebie culture, a failure to adjust user charges for key consumption items and utilities, or a lack of revision in property index values and property tax rates. A thorough examination of these details is necessary before attributing the debt increase to a particular factor.
Q/ Some states have complaints about the central government stopping the GST compensation.
A/ I believe this is a matter for the GST Council to deliberate upon. It [GST compensation] was originally meant for five years. The GST, as an indirect tax revenue system, has proven its mettle and has come of age. The actual revenue growth has consistently increased year after year. In that sense, this may be a moot point.
Q/ Are we on track to achieve our commitments on green transitioning? Also, what are the challenges we are facing now in balancing our industrial growth and green commitments?
A/ I believe we have performed exceptionally well so far, surpassing many others. A report by the International Finance Corporation released in early October highlights that among the G20 countries, India has made the most significant progress in shifting towards renewable energy. In this context, India is well ahead of many other nations in its energy transition. Importantly, this transition has not impeded industrialisation; rather, it has facilitated it.
However, looking ahead, as the proportion of renewable or non-fossil fuel energy increases in India’s overall energy mix, challenges will arise. It is important to note that this is not unique to India; many countries, including advanced ones, grapple with similar issues. Concerns such as grid stability, battery storage, and the availability of critical minerals and rare earths essential for renewable energy are shared challenges faced by the global community. In this regard, India has navigated its transition toward non-fossil fuel energy more effectively than many other nations, as acknowledged by the IFC report.
Q/ On the economic side, how are we preparing ourselves to fight with China?
A/ I don’t perceive it as a matter of contention or a trade-off. China’s rise occurred during a period when the US and western countries were flourishing. Likewise, it is not a zero-sum game. I think there is enough scope for India to rise, even as China’s growth rate levels off. Because it has now reached a certain level in the GDP, where naturally its growth rate will be lower. India is ready to pick up the baton, and India’s growth rate will improve.