There’s more space for intervention on monetary front than fiscal front, says Sanjeev Sanyal

The focus of the Economic Survey 2019-20 is to make a case for wealth creation, Principal Economic Adviser in the Finance Ministry Sanjeev Sanyal

February 01, 2020 02:12 am | Updated November 28, 2021 11:38 am IST - New Delhi

Sanjeev Sanyal. File

Sanjeev Sanyal. File

While the central bank has struck a cautious note on further interest rate cuts given a spike in inflation over the last few months, Principal Economic Adviser in the Finance Ministry Sanjeev Sanyal believes there is more room for monetary policy actions to spur growth.

You are optimistic of growth rebounding to 6% to 6.5% from the 5% estimated for this year. Could you elaborate on the reasons for the hopes of an uptick?

We have actually been quite conservative — 6% to 6.5% growth is fairly okay given that many of the short-term indicators have stabilised already. They are not strong but they are no longer deteriorating for most parts — be it the PMI or other indicators. So that is definitely going to be the case...

But I think the focus of this Economic Survey is really on making a case for wealth creation. As the Prime Minister has also said, if we cannot create wealth, you cannot redistribute it. So we need to reconsider our default socialist thing towards redistribution as it seems to be imbibed inside our intellectual frameworks. What we have tried to do is make the case for markets, privatisation and removing interventions where they are needed, and also interestingly, the need for us to take trust systems more seriously. So being pro-business is very different from being pro-crony.

This is what we have tried to show. There is the Essential Commodities Act that may have made sense in 1950s when we had shortages and so on. But today it doesn’t as we produce enough food but the problem is of storage. If you are going to call people who store and transport food ‘hoarders,’ then why should they invest in it? So we need to rethink this whole approach to economics.


Secondly, we have also shown how value is created by privatisation. We have looked at the wall of regulation that Indian businesses face. For restaurants in Singapore, you need four major permits. In Delhi, you need 26 permits and each of those requires many documents — a Delhi Police permit needs 45 documents, while getting a gun requires 19. And then some of the other rules are ridiculous like music permit, bike delivery permit and so on that we have mapped out.

The other thing we did, which I don’t think that any other Survey has done, is to simply follow the logistical steps Indian imports and exports take. What happens when an apparel consignment leaves Delhi and what are the steps that it goes through, how much time it takes till it reaches the final warehouse. We found that it takes five days to reach Nhava Sheva (port) which is ridiculous, where it spends 14 days going through customs and other processes, then it takes 22 days to get to the U.S. and on the other end, it takes three days. So the entire process is taking 41 days of which 19 days are spent on our own side. We did this also with carpet exports through an inland port — again, 40 days are taken of which 13 days are spent in India. When we reversed this whole thing, we found that a carpet made in Milan gets on to the ship within a day, and after it lands here, it takes eight days to exit the port including two days of waiting to berth at the port. Now, first of all, it is completely absurd that we take so long compared to other countries. But the other aspect is that our own imports are more efficient than exports. So, if you want to be a serious merchandise exporter, you cannot be behaving like this. We are making the case to do process mapping. We know many of these problems are there, but how serious are they? Interestingly, at our airports, we are able to solve the same thing. In fact, at Bangalore airport, it takes ten hours to move goods out. If you are a registered operator, you can do it in six hours, which is the world’s best. So we are ourselves able to some of the world’s best in one place, but are disastrous in other places. It is a clear case of not paying attention, tracking this thing and monitoring the pipeline.

You have talked of public sector banks coming together to pool data and use analytic tools for identifying likely defaulters.

We generate a lot of data as a country, this is not just about banks. We have enormous amount of data and then we don’t do anything with it. There’s talk of using Artificial Intelligence and the GST guys use it a bit, but by and large, we can dramatically improve the targeting of all that we are trying to do, with AI that is widely being used worldwide. We claim to have expertise in it and in fact, for other countries, we are doing it in Bengaluru. We don’t seem to apply it in our own country... It can be used for fraud detection, working out credit quality, where capital is deployed well, where are the returns coming from. It doesn’t have to be used for negative things alone. You can even track which guy is better over the course of a career on picking winners. Private sector banks are already much more efficient at assessing risks. This is a generic point and not restricted to public sector banks.


There has been some mention of counter-cyclical fiscal measures that can revive growth... What could they be?

I have always said the larger space is still on the monetary side. But there are fiscal things that may be done but I am not in a position to disclose them today.

You feel there is space on the monetary side despite the high inflation?

Yes, I do. It’s food inflation (that is rising). The underlying inflation is very well-behaved and there is plenty of space on the monetary side. We have also mooted an important reform called bilateral netting. Let’s assume you and I are banks — I have ₹100 exposure to you and you have ₹90 exposure to me. In the current environment, both of us have to keep ₹190 capital aside to cover this. But the risk in the system is only ₹10 — which is my net position vis-a-vis you. So actually, we should only be keeping ₹10 capital aside.


Worldwide, bilateral netting is accepted, but we don’t allow this. We have set these capital requirements and too much capital is getting stuck that we can release immediately.

Secondly, without such a system, you cannot do much in any kind of derivative instruments... For example, the Credit Default Swaps (CDS) market doesn’t exist in India because we don’t have bilateral netting. If you don’t have a CDS market, you cannot have a corporate bond market. This is a very important reform that we need to do that needs a law at some point. Then the RBI can frame the rules.

GST collections have shown 4% growth and Survey says it has stabilised. But there’s a need for rationalisation…

Eventually, there’s no question that we have to rationalise GST and simplify it. The question is do we do it right now when the system is stabilising. Making too many changes also causes people to crib. That is a judgement that the GST Council will have to take.

How do you converge ‘Assemble in India’ with Make in India?

They are basically the same idea. We have to be competitive… People who manufacture in India manufacture for the world as well. Partly, regulatory and logistical changes are needed — but really, we need a mindset change. Very often in India, people say: ‘Oh, certain product is made, and only a small amount of value addition is made here.’ So what? We have to be willing to get into those parts of the system where the value chain may not be large but there are enormous volumes. China’s growth is entirely due to this.

When the first few Maruti 800s came, they were largely imported from Japan. Now we are a global car exporter. There is no reason for us to be snooty that we haven’t got a great amount of the value. You have to be a part of the chain in the first place; then we can talk of how much value you create.


You have talked about wealth creation and the role of trust systems, be it in institutions or trust in government-industry relations. Is there something that can be done to fortify these ties that have frayed a bit?

Of course, when we had a system of a certain kind, and we changed it to another system, the transition will cause disruption. We have seen those disruptions, but I think now we are coming to the point where people have by and large, accepted that are rules such as banks being heavily supervised and regulated than in the past. So, I think the transition to a new way of doing business is happening. There is no question that creditor rights today are vastly different from what they were five years ago.

You have included some studies on crony capitalism leading to undue gains for certain stocks involved in the 2G scam. What is the resonance of that today, since we have moved on from such crony capitalism as you suggest?


The idea was to make a point about trust. We talk about creating wealth but within a system of trust. We are unapologetic about pushing wealth creation, but for ethically made wealth, not in any which way. That’s why our cover includes trust and markets.

You have included some studies on crony capitalism leading to undue gains for certain stocks like those involved in the 2G scam. What is the resonance of that today, given that we have moved on from such crony capitalism as you suggest?

The idea was to make a point about trust. We talk about creating wealth but within a system of trust. We are unapologetic about pushing wealth creation, but for ethically made wealth, not in any which way. That’s why our cover includes trust and markets.

The Survey has talked of built-up demand pressure… In which sectors do you see this?

For example, our inventory pipeline is completely bare now. We have had inventory down for almost two years. If demand begins to come back, we will see a significant kick from inventory build-up. Of course, that requires you to be able to back it with working capital from the banking system.

That is why we always keep coming back to the fact that our banking and financial system, having gone through a lot of cleaning up, now needs to go into expansion mode. And we have spent a lot of time examining the transmission issues in the Survey. 

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