Interview: 'Possible That Successive GDP Numbers Continue To Surprise On Positive Side', Says Chief Economic Advisor, Dr V Anantha Nageswaran

Dr V Anantha Nageswaran, India's Chief Economic Advisor, recently sat down for a conversation with Swarajya on the Q1 GDP surprise, tariffs, GST 2.0, jobs, and an unheralded policy achievement of the Modi government.

Edited excerpts.

Swarajya: Thank you so much for taking the time to speak with Swarajya. Now we know that the US and India are back at the table to discuss a trade deal and things look positive on that front. There was also a call between PM Modi and President Trump last night. But just to go back to last week of July, when the 25% tariff post first came from the White House and from President Trump, what was the thinking in the government during those first few hours and days?

Chief Economic Advisor: To be honest, you're probably asking the wrong person. This question would be better directed at the Ministry of Commerce or the Ministry of External Affairs. Obviously, the concern was about the impact on specific sectors and longer-term questions about trade partnerships—those are questions that MEA would be better positioned to answer.

At the macroeconomic level, we were concerned about the impact on economic growth, sentiment, capital formation in the economy, and employment numbers. In the Ministry of Finance, these were the thoughts going through our minds: How long would it last? What kind of relief measures would be needed? How to support sectors for diversification into other markets? At our level, these were the primary concerns.

S: This episode showed us once again that macroeconomics on a global scale is perhaps just politics by another name. What do you think about that?

CEA: I don't think this is new—it's always been the case. Both go together. In fact, some people used to say that foreign policy is just domestic policy by other means. These are enduring truths, except that the magnitudes, frequency, impacts, and relative weights will vary depending on circumstances. But these are eternal truths, I would say.

S: The last time we spoke, you discussed how globalisation is now a thing of the past. Where do you fit this current tariff friction in that assessment of yours?

CEA: Tariff impositions are just a manifestation of that broader trend. I was approaching it from a longer-term cycles perspective because cycles of globalisation and globalisation reversals have happened in the past.

Considering that we have had 40 years of a great spell of globalisation, and some of its negative aftereffects were beginning to be felt more clearly in communities across the world—both developed and developing—some kind of reversal or pushback was to be expected. My comments were not specifically related to tariffs; the tariff development is only a manifestation of that broader trend.

S: Regarding the Q1 GDP numbers, would you say that in the short to medium term, India's GDP numbers overall would continue to surprise us more on the positive side?

CEA: That's a good question. By nature, I don't like to make too many optimistic predictions and then defend them if they don't materialise. I would rather be surprised on the upside—I believe in underpromising and overdelivering.

Having said that, you may have something there in how you've framed the question. I've been noticing that post-COVID, we have had two years of about 9 per cent growth, one year of about 7 per cent growth, and for 2024-25, we have a reported number of 6.5 per cent growth. These are very impressive numbers, and the first quarter came in at 7.8 per cent.

Is there something happening in the economy that is pushing us to a higher orbit in terms of GDP growth numbers? That possibility is something we are beginning to think about seriously. We would rather wait for the Ministry of Statistics to come up with its new base year and new GDP methodology before we can say something more definitively.

But I would certainly say the possibility you outline should be taken seriously—that we will be more likely to be surprised positively, barring external factors and geopolitical developments.

S: Since you mentioned data and MoSPI and GDP numbers, would you briefly share for our readers the difference in how India calculates its real and nominal GDP compared to other countries?

CEA: I would draw your attention to the detailed article that the Secretary of the Ministry of Statistics and I wrote in Business Line a couple of weeks ago. It's difficult to compare off the top of my head how we're doing it versus other countries, because many emerging market economies do what we are doing, and ours is not an outlier.

The problem is that many critics question the methodology only when the data surprises on the upside. When data surprises on the negative side, they are happy with the methodology. They have a certain view of the economy underperforming, and if actual data meets their priors, everything is fine. If it doesn't, then everything is wrong. That approach is unfortunate and disappointing.

From a conceptual and logical perspective, you cannot use average tendencies to explain marginal phenomena. Critics say India has problems with deflators, surveys, nominal GDP calculations, etc. But these factors are present every quarter, so you cannot use these continuing factors to explain a specific quarterly GDP number.

For quarterly data, India calculates at least 55 per cent of GDP using the reverse method—we start with volume or real values and then superimpose the deflator to calculate nominal GDP. The argument that low deflators led to higher real GDP growth numbers is not entirely valid because 55 per cent comes from the alternative approach where we start with real quantities and then superimpose price levels. It's not just a statistical artifact.

The 7.8 per cent real growth and, more importantly, the 8.8 per cent nominal GDP growth were much higher than consensus forecasts, which anticipated around 8 per cent but the final number was nearly 1 per cent higher.

S: Regarding GST, we know GST reforms have been a work in progress for long. Can you share a picture of the backroom work that went into getting GST 2.0 up and running?

CEA: It would be presumptuous for me to answer that question because a lot of work has gone behind it, and I was not part of it. This question should rightfully be directed to the Revenue Secretary, because he and the Finance Minister were the main architects of the goods and services tax reforms.

All I know is that extensive conversations and consensus building happened between states and the union government at the level of finance ministers and higher, as well as at the bureaucratic level. A lot of preparatory work was done before GST 2.0 became a reality. But it's only fair that the architects be given the opportunity to respond rather than me.

S: I know it’s too early to ask this but since you are here, let me go ahead and ask anyway: what do you estimate will be the next milestone for the GST? Or, where do you see the GST in 2047?

CEA: We just finished a revision, so it's still premature to talk about the next milestone, whether in terms of inclusion of still-excluded items or other reforms. GST 2.0 reforms in terms of registration and process improvements haven't even come into force yet. The appellate tribunal for GST (GSTAT) is being constituted, and GST 2.0 is just getting underway. It's still early days to talk about the next milestone in the GST journey.

S: In one of your recent speeches, you used the phrase "the cost of being honest" when discussing ease of doing business. Can you take a minute to expand on that?

In the process, we make citizens and businesses dishonest. The important thing is to facilitate voluntary transactions and economic activity between individuals, between individuals and businesses, and between businesses, in such a way that it's easy to be honest while enhancing the volume of voluntary transactions between various stakeholders.

That's the whole point of economic reforms and regulation. The more burden we impose on people to be compliant and stay honest, we increase the cost of being honest, giving them incentive to cheat at the margin. We end up making the citizenry somewhat dishonest, which is not right for society as a whole, which suffers from lack of trust.

S: India needs jobs, but at the same time, we can't be left behind in deploying the latest technology at a scale. How is the government thinking about this issue?

CEA: These are not easy questions—they are big problems of public policy. This is an enduring challenge since the Industrial Revolution: technological change, what kinds of jobs get created and displaced, what's the right balance, how do winners compensate losers, how do we prepare people to participate in a technologically different economy and society?

One approach is to equip, train, and create opportunities for people, prepare the education system and curriculum, provide incentives, and direct them to appropriate areas. Given that we are a large country with different states at different stages of development and technological readiness, those not ready to participate in a technology-oriented economy can be directed toward labour-intensive sectors. We need to facilitate those sectors to flourish while preparing people over time for the more technologically intensive economy.

These are granular, nuts-and-bolts aspects of policymaking. There are no neat, formulaic answers to these questions.

It's important for the government to be aware of this challenge, which we are. If you look at the last two budgets, we've provided incentives for internship schemes and employment incentive schemes. While balancing technology and manufacturing, we've also set up centres of excellence in artificial intelligence and are aligning educational curriculums with AI development so our youth can participate. We're approaching this in a multi-pronged manner, which is what it should be.

S: Staying on jobs, where do you think the greatest threat to employment lies in the short to medium term?

CEA: Rather than calling them threats, I would say these are tasks, challenges, or priorities to address. While everyone focuses on preparing Indian youth through education and skilling, I would also focus on what we've been writing about in the Economic Survey—the equally important need to focus on mental health, anxiety levels, and stress that young people experience, including suicidal thoughts.

These are becoming extremely prevalent because every passing year, social media's intrusion into young people's lives increases, taking up bandwidth in terms of time, mind space, and emotions. These are quite important challenges.

While some obvious challenges to job creation—education, skilling, equipping labor-intensive sectors, government removing barriers through deregulation—are fairly well discussed. At least we have the contours of the approach to these things.

We need to focus on things not easily in the public domain. Ensuring the emotional, physical, and mental health of India's demographic dividend is a major challenge.

S: One unsung story of the Modi government has been its focus on fiscal discipline. From a high of 9 per cent during pandemic years, we're now on track to target 4.4 per cent fiscal deficit in the current FY. Would you explain for the benefit of our readers why fiscal prudence is important for any government?

CEA: You've touched upon an important point. Fiscal policy matters significantly. Yes, we were at 9.2 per cent of GDP fiscal deficit in FY 2020-21 because of COVID and security-related expenditure. Now we're estimating 4.4 per cent this year—that's our budget estimate, and we're confident of achieving it.

When the Finance Minister made the promise in 2020-21 to bring it down by more than half from 9.2 per cent, there was skepticism. Now there's acknowledgment that we've been able to do it.

How does this help Indians? It's not esoteric or an abstract concept that is only a matter of debate or discussion between economists or public policy makers. It touches ordinary people's lives everywhere.

The government's interest rate is the benchmark on top of which other interest rates are determined. Currently, if the government borrows for 10 years, it pays 6.5 per cent. Eleven years ago, it was 9 per cent. This 2.5 per cent decline translates into lower interest rates on mortgage loans, auto loans, educational loans, and business borrowing rates.

You may think some rates are still high in absolute terms, but you must compare to what you were paying 10-11 years ago. Fiscal policy that contributes to consistent, steady decline in the cost of capital—interest rate decline—is the most important fiscal stimulus any government can provide. This government has achieved that, and it's now being recognized by credit rating agencies.

The reduction in interest rates has been happening over the last 11 years. We've reached a point where there's meaningful decline in the cost of capital for Indian households and businesses. And that is now recognised by credit rating agencies as well. They are beginning to do so.

S: But do you think the recognition is coming too late?

CEA: Whether credit rating agencies recognised it in time is immaterial beyond a point. The markets recognized it, which is why Indian government bonds were included in JP Morgan and Bloomberg emerging market bond indices even before credit rating agencies acted. Market recognition translates into immediate benefits—lower borrowing costs because the government kept its fiscal house in order.

We achieved this despite spending substantially to capitalize banks, which are now in good shape because the government recapitalized and strengthened them. This came after spending on COVID vaccination and security needs, and after providing massive increases in public investment from Rs 3.3 lakh crores to Rs 10.5 lakh crores in six years. Despite all this, we managed to keep the fiscal deficit in check and bring down borrowing costs.

That is a huge, as you correctly put it, unsung achievement of the government—enabling lower borrowing costs for all Indians.

S: Finally, you've been writing about India and its economy for many years, and in 2022 you were called to serve as Chief Economic Advisor. In these three years, what is one thing you learned about India, the Indian government, or the Indian state that surprised even you?

CEA: That's a very good question, and I don't want to be casual in answering it. I don't think anybody outside can really fathom the complexity of governing a country of this size, diversity, and range of issues that come to the desk of either a senior bureaucrat or minister every day.

There's no fathoming the depth, breadth, and complexity of challenges we're dealing with in running this economy. When I came into office, seeing how many people are grappling with these trade-offs—from the outside, we don't appreciate the important trade-offs involved.

These would be my important learning or surprise: the enormity of the challenge of governing a country as big, complex, and diverse as this.