Special 
A: There are many aspects to the question of inequality. One of these is that inequality has many different measures. You can measure inequality through a Gini coefficient that economists typically use to determine overall inequality in a group. But then you can also measure rural and urban inequality, you can measure [the] top 1% relative to the bottom 10%, you can measure the wages of the skilled to the unskilled in the organised sector. With all these measures, if you are really after alarming people, you can always find a measure that shows rising inequality.
The claim that the top 1% of Indians have 23% of income and wealth share is a common one that alarmists love to use. The point is that if a country is generating wealth, somebody will have to generate it. And even if they were keeping 2-3% of that wealth for themselves, [they are] distributing the rest of it across the rest of the population. Look at the sheer numbers when you have got 1.4 billion people. So, you could choose not to create wealth, and everybody could stay poor. Or you could create wealth, and some people will get wealthier. I don’t lose sleep over that, because after a point, the main function of it is not so much the consumption of wealth, but a matter of how you allocate that wealth for further growth.
“ Our poverty in 2011-12 was somewhere around 20% or so. In the latest survey (for which full unit-level data is yet to be released), it is clear that extreme poverty has fallen below 3-4%, down from 20% ”
The second aspect is what kind of inequality really offends us? Generally, what we lose sleep over is within our own immediate social context. If I have a colleague at Columbia, who is given a salary increase of 20% and I get only 5%, that really is something over which I will lose sleep. But if a billionaire makes another billion or five in any given year, it doesn’t matter to me.
A: The latest consumption expenditure survey (2022-23) has come out [recently]. The previous one was in 2011-12. These are very comparable surveys. And if anything, the new one perhaps overstates poverty a little bit, rather than understate it. I won’t go into the reasons as they are a little technical.
Our poverty in 2011-12 was somewhere around 20% or so. In the latest survey (for which full unit-level data is yet to be released), it is pretty clear that extreme poverty has fallen below 3-4%, down from 20%.
A: You know, my late brother, who was a very distinguished neurologist, used to tell me that the brain works like Velcro for negative news, and like Teflon for positive news. Some people have made it a business to stay in the limelight and continuously question the GDP data. Any good news is questioned, either on the quality of the data or the government’s intentions. But you know, it is not that easy to fudge GDP growth data. What you would fudge is the GDP to do that. So, if this year I fudge the data to raise the growth rate by 2%, I hike the GDP by that much. Next year, this becomes my base GDP, over which I would have to calculate the growth rate. So, I would have to fudge 4% to get the extra 2% growth next year. In the third year, I would have to fudge 6%. Very quickly it will get out of hand, and I will get caught. It is not that easy.
GDP data collection is a very broad exercise. It is not like you are collecting one number, so you can easily fudge it. It is a mass of numbers that are being collected, and ultimately it is the aggregate of those. A lot of experts turned out to be wrong in their forecasts by several miles, and they go ahead and say the gross value added (GVA), which is the calculation of output at factor prices, has grown by 6.45% and that is about right as that is what we expected. But the 8.4% is not right because that is just tax revenue.
Now, if you are an economist, that borders on nonsense because there is output associated with tax revenue also. The government controls a certain amount of output associated with tax revenue. That is in no way anything less of an output, than the rest of the GVA is.
A: I would like to put it differently. You know when we say jobless, somehow, we think of unemployment massively rising. I have always maintained that India’s problem is not unemployment really. If you interpret the data of the Periodic Labour Force Survey, which is very credible and consistent, it actually shows a steady decline in the unemployment rate. So, in this sense, certainly, jobs are being created.
The problem is that we are not creating good jobs. As a result, the productivity levels in India remain low. I think the problem is of underemployment—a job that could be done by one person is done by three or four persons due to the lack of capital. That means [the] output per worker is low. We need to do something about this. One way that you can see this is you have got 45% of the workforce in agriculture, [and] another 45% in the micro and small enterprises. This means the output per worker of 90% of the workforce is very low.
A: When I was at the NITI Aayog, I greatly worried about non-performing assets (NPA) in the banking sector, which were massive at some point of time. That episode is now behind us. But, you know, I would hate to be duped once again into thinking that we are now in a very secure zone. It is true that there is no ‘phone banking’ going on in the current administration. But you know, finance is a strange animal, and it is hard to predict if NPAs will be recreated. In our own history, it [the NPA crisis] was not the first episode, but the biggest one so far of NPAs happening. One thing you see, which is very asymmetric, is that all the money the government had to invest was invested in the public sector banks. The government did not invest anything in private sector banks, although it did rescue one of them. But in the end, no public money actually got lost in doing so.
“In my assessment, now we will probably not see a growth rate of China that is more than 5%—more likely 3% or 4% ”
I think this is in fact a good opportunity when the banks are now in good health, they are flourishing, and they have solid value. This is a good time to privatise. I think when the government comes back in its next term, and I say this wearing my economist hat, it should seriously start privatising some of the banks. This is going to be a very long-drawn process anyway. It is not an issue of privatising all the public sector banks, but the process should begin. Because I still think that in the end, the pressure of the market is very important for banking to be efficient. As privatisation progresses, we can assess and judge whether the privatised banks are actually doing better than those that have not been [privatised]. We can then take a call on the other banks at that stage. But that process, really, I think, does need to begin soon.
A: Well, one thing is certain that the 10% growth that we observed in China is now behind us. That is not coming back. Singapore, Taiwan, South Korea and counting Hong Kong as well, are the four countries before China that had grown for about three decades at rates that were 9-10%. After three decades, when you get to the fourth decade, growth usually drops to somewhere between 5% and 7%, and when you get to the fifth decade, it drops to below 5%. So even without any of the other things, any of the other shocks, Chinese growth was certainly ready to drop. In addition, now it seems to me that the Chinese leadership has done things that were detrimental to the business environment. The growth rate that was already declining, got another negative shock through the actions of the government. In my assessment, now we will probably not see a growth rate of China that is more than 5%—more likely 3% or 4%.
“GDP data collection is a very broad exercise. It is not like you are collecting one number, so you can easily fudge it. It is a mass of numbers”
A: I wouldn’t say the economy had overheated in any way. I think we made mistakes in the second term of the United Progressive Alliance government. And that is what set back the growth rate. And then, of course, the banking crisis, the NPAs took their toll. We are very much capable of sustaining 8% growth. If we do the right things, including on trade, we certainly have the prospects of getting to 9-10%. There is no reason, in my view, why we cannot do that.
A: One hundred per cent! Absolutely! I think that is imperative, it is essential. I would love to see us knock down the tariff barriers across the spectrum, meaning uniformly across all countries. But that is probably not going to happen. So, the next best thing really is free trade agreements, which come together with our geopolitics because the government clearly wants to move away from China.
A: Well, we will see. There is some rhetoric of that kind that is coming in. But you know, certainly President Trump was very much for reciprocity. So, if on a reciprocal basis, he will keep his own barriers low, I have no problem with that. We should lower our trade barriers. That is good for us. If reciprocity will do it, I think we can still remain in business. But we have to be willing to engage reciprocally. By the way, free trade agreements are all about reciprocity. We should first very quickly complete the one with the UK, and the one with the European Union. We will then be very well placed to deal with the US.
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