Speaking to Swarajya, in an exclusive interview, Principal Economic Advisor in the Ministry of Finance, Sanjeev Sanyal, elaborated on an array of issues, starting with the Economic Survey of 2022 which he has authored. Sanyal also spoke at length about the new age of policymaking, why five-year plans were best left to the pages of history, the importance of high frequency indicators, cited in this year’s Economic Survey, in the implementation of welfare measures, and how digital financial inclusion was transforming lives across the country.
Speaking on the Budget of 2022-23, presented by Finance Minister Nirmala Sitharaman, Sanyal stressed the importance of long-term development plans that are critical to India becoming a $5 trillion economy.
Thank you so much for your time. Congratulations on a stupendous Economic Survey, it’s a very thorough document, elaborate, and gives a great insight into how the economic situation has been over the last one year, but more importantly, presents an interesting vision as to how it would be over the next decade.
Let me start with the ‘Waterfall’ strategy that you mentioned in the economic survey. We are going from a 'Waterfall' strategy to an 'Agile' mechanism for policymaking in India, and can the 80 High-Frequency Indicators listed in the Economic Survey of 2022 be extended to all the public welfare schemes so as to better allocate the funds, say for an Awas Yojana, or Jal Jeevan Mission, and so forth. Is it time we really start debating the use of Big Data at a far more elaborate level than previously imagined when it comes to policymaking and policy implementation?
Historically, the way policymaking has happened in India, and across the world, was to take up an issue, spend a lot of time doing the surveys to understand the issue, and then create a policy as elaborate as necessary, and then you implement it. Now, this is what we call a ‘Waterfall’ approach in project management, it’s a unidirectional approach.
The problem with this approach is that we do not live in a world where it is possible to thoroughly understand a situation or a problem because it is in a completely evolving situation, the circumstances are changing. Look at the last two years of the pandemic, a very good example of the complex evolving world, so in that environment, a static, unidirectional approach does not make sense. Probably, even in normal times it does not make sense.
Waterfall model is the basic approach used for things like the five-year plans. What was the idea of the five-year plans? They’ll have wise people sitting in the planning commission who would know the future, and they will create this great plan, or even the way we have been building cities since independence. The idea is to have these wise urban planners who would create a ‘Chandigarh’ and we all will live happily ever after, but why these plans fail is because they are rigid, that by definition, cannot evolve according to what actually turns out to be the real situation. So, whenever something in India goes wrong, you’ll often hear that the plan was great, but the implementation suffered, because the policymaking has its origins in the ‘waterfall’ thinking.
What we are doing here is challenging that entire way of thinking, that is if you live in a complex and uncertain world, it is inherently impossible to tell or predict how the future will be.
So, rather than creating these elaborate plans or models to create the future, it’s better to pay attention to what happens and then evolve and adapt to what happens.
Anyone who has worked in the field of software development or project management knows that there is a huge literature on agile responses. So, all I am doing is taking that general approach and applying it to economic policies.
It’s done in other places, but in India, the obsession with planning of the old kind is half the problem. That does not mean we do not need planning, but a different approach.
We need scenario planning, stress assessments, try and work out the safety nets, that is a fair thing to do for planning, for an uncertain future, but having evermore rigid plans or regulations or forecasts, that is a waste of time, and what I am arguing is that you need a much simpler system, which is flexible and allows you to respond.
There were two extremes in the world of economics when the pandemic began. The first extreme, perhaps guided by their intellect or established notions focussed on what we call the helicopter money, direct cash transfers. The second extreme, the one distant from convention, focussed on cushioning the impact of the pandemic for the most vulnerable sector, as we did in India, along with policies that offer long-term development prospects, say investments in infrastructure. Using the benefit of hindsight from the last two years, could you explain to us the advantages or disadvantages of one over the other.
Well, I leave it to you to decide that, but for the benefit of the readers, let me explain the difference between the two approaches, and it is directly related to the difference between waterfall and agile methodologies.
Right in the beginning, if we go back to February-March of 2020, when this whole pandemic started, there were these so-called experts of all kinds, economic experts, health experts, making all kinds of forecasts about how this pandemic will be. Some were saying that it is a simple case of flu and some were saying that millions of people would be dying in the next few months.
The fact of the matter is that we in the government also got the same presentations that people across the world saw, but how do we bet the lives of 1.3 billion people on forecasts that are without credibility, and as it turned out, neither of those forecasts turned out to be true. Instead, you have a series of waves and different things happening in different waves.
So, given the situation, the best you can do is to hedge for the worst case, which is you provide a safety net for the poor, safety net for MSMEs, and so on.
Now, no one is making a case that these are great development strategies. These are safety nets, meant to just provide them cushion. This buys you time to do other things, like working on the vaccine development, supply-side measures, but when the opportunity arose, we also began to do capital spending to rebuild demand.
So, the approach was to not have upfront, these grand reflation packages, pretending we knew how things were going to pan out. Instead, we had this iterative approach where the Finance Minister came up with medium-sized packages, depending on how the situation was evolving, and the main point we are making is that this is the only certain way of dealing with an uncertain environment.
Look at the outcomes you have had in the rest of the world, for instance, ignoring the supply side and by simply pumping up demand in a particular way, we have ended up with global inflation.
In India, all the inflation pressures that we now have are all imported inflations, whether it is coming from energy prices or supply chain bottlenecks, or container prices. All these prices are on the supply-side which the world somehow imposed on itself.
I want to come back to the Agile framework we discussed, please. In the second chapter of the ES, we see how the stimulus announcements were changed with time. In March 2020, the focus was more on food, livelihood, two months later, it was more to do with liquidity, by October 2020, it was Consumption and Investment, and so forth.
The pandemic is one example, but there are various external and internal disruptions that the economy is subjected to, so are we to understand that the pandemic stimulus mix was a sign of times to come when it comes to fiscal spending?
Absolutely. Look at the data in the Economic Survey, and we discussed 80 High Frequency Indicators, and there can be other indicators as well in the future. But the main point is that when you are playing a sport that involves hitting a ball, the coach will always ask you to watch the ball. That’s what we do. We watch the ball rather than spending time looking at the manual.
So, where do we find ourselves today? One, we have had these three waves, the last one being relatively mild, the economy is clearly recovering, and most sectors are now above the pre-pandemic levels. Exports are growing strongly, with service sector exports doing particularly well. Public investment is doing well and we are expanding it.
However, we do realise that there are certain sectors that are not on the pre-pandemic levels, and in the Economic Survey, we clearly mention that the contact-based services, no surprises here, are still recovering, and we have to provide support for them.
In the Budget, we had such sector-specific measures, particularly some liquidity support for the hotel industry to the tune of Rs. 50,000 Crore. Of course, other things, when needed can be done.
The important point, however, for contact-based services in particular, is that we have to open them up. We can provide all kinds of support, but that won’t be good enough unless they are not opened up so that they can do the things they are supposed to do. In that situation, the most important intervention for that segment of the economy has to be vaccination.
This is where the vaccination becomes a macroeconomic intervention, and we have talked about it in the Economic Survey, and because we have done well on that front, we can now hope that in 2022-23, even if there are incremental waves, we won’t have to go for the lockdowns like last year, or so we hope.
I am hopeful that we’ll keep the sector open, and won’t have to employ a stop-go-stop-go approach, and then this sector will bounce back quite fast.
The ECGLS (Emergency Credit Guarantee Line Scheme) was a big booster for the MSME sector in the economy and the fact that it has been expanded by another year with an expenditure of Rs. 5 Lakh crore serves as a testament to its success.
However, one constraint for India's MSME sector, a huge contributor to the GDP is the lack of formalisation. How do we tackle that and while GST has been critical in getting many firms outside the formal purview within the tax radar, what more can be done to ensure they have adequate financing, government support, etc?
Well, first of all a lot of formalisation is happening and the GST itself enabled it, but many of the supporting measures that the government provided are only easy to provide to the formal sector because they're registered. They're in the system somewhere, and we know it, say whether it's the EPFO support or whatever that serves as identification within the system for these MSMEs and it is easier to provide them support.
Now, I am not saying that we didn't provide any support to the unregistered MSMEs. We did try all kinds of different ways of helping the informal sector as well but it simply is easier to be in the formal sector and that's how it is and so we encourage people to formalise because of that.
However, we do recognise that there are parts of the economy that still need support and in that context it's important that we recognise and as I mentioned just in the previous point a lot of this is where the worst affected segments are in the contact-based services. This could be the small tour operator, the small shop or an eatery.
This is why, hopefully, we are moving into an environment where we can keep this system open and because you see there is simply no point in pumping the accelerator if you've got, at least for those segments, their foot on the brake and it's an analogy I have used throughout the last couple of years.
While for the economy as a whole now the foot is not on the brake there are segments where we have had to keep pressing the brake so I am just hoping that we don't have to do it again, for that would be good, that is to allow the demand to come back.
I am quite confident the demand would come back quite quickly and we have seen that the episodes where we kept things open, we did see the demand come back quite quickly, but the problem was that immediately then you had photographs surfacing from the markets of Delhi, like Sarojini Nagar and so on.
You have always stressed on growth, because growth creates jobs, and within the pandemic, we learned of the Production Linked Incentive Schemes. Now, within the context of the $5 trillion economy, where do you see the endgame for the Production Linked Incentive Schemes?
We have gone as far as inviting companies that produce chips to India, we have laid out the red carpet, promising all the support that they need, so where is the endgame here in our pursuit of becoming a $5 trillion economy?
So, let it be absolutely clear that the idea behind the $5 trillion economy or the PLI scheme requires one to step away a little bit and understand the theory. You see the old idea of an interventionist government was you had to have some sort of a socialist kind of intervention bent and the alternative thinking to that was the Washington Consensus which is that you open everything else and so the reform basically meant deregulate, get out, get rid of the government, and to some to some extent that's the right thing to do.
However, what you have here is a willingness to do interventions where in a limited way you try and stoke certain sectors where you think you can scale up faster. So, this is still choosing winners, this is still about intervention. The PLI scheme is a specific, targeted support.
But when we make this targeted support, we hope all of them will succeed; however, we are quite open to the idea that from time to time some of these may not, in which case we have a time horizon and after that hopefully some of them have succeeded, some may not have and then you move on to another round and other sectors.
Perhaps, some of the same sectors have continued to have promise; so the point is it's a flexible approach and you look, you do a few things to support a few sectors and when they do well you move on to another bunch of sectors and so on and so forth.
Therefore, you keep adjusting with time, so this is not about non-intervention but it is feedback loop-based intervention and that's why I keep coming back to this idea that it has to be feedback loop-based and this is not about an initial theory about what will work.
Don't be surprised by the fact that much of this is linked to the Austrian School of thinking as well and you will see that one of the few economists I quote in the economic survey is in fact Frederick Hayek who comes from the Austrian School. It's about flexibility, iteration, it's about creative destruction in multiple ways.
Air India, the elephant in the room, metaphorically and literally, has been addressed, and congratulations to the government for accomplishing what appeared to be an almost impossible task.
However, I must admit there is this prevailing pessimism, unfounded when it comes to disinvestment. The political class says you are going too fast, the policy class says you are going too slow, and then there are other sets of financial challenges. Now, post-Air India sale, how do we look at the prospects of disinvestment going forward?
Within the Budget documents, we have stated what we want to do. Our policy about this is quite clear and unapologetic. We don't even use the word disinvestment anymore. We talk about privatisation, yes but that doesn't mean that we do not see a role for the public sector.
We are very clear that there are certain strategic sectors where we will retain a public sector presence. We also, by the way, are not shy about creating new PSUs, as you may know. The NPCI is a good example of a payments company, or creating information portals.
We have no emotional problem about creating new public sector enterprises, so this is not a Washington Consensus problem with public sector but our point is that certain companies are simply more efficiently run by the private sector and the government should not be in those sectors and we should move on and even when or if the government does stay, there there is a lot of space for the private sector. So, privatisation is something that we are quite unapologetically in favour of except for those bits where we want to retain or where we want to make fresh investments.
We have now done Air India so we have demonstrated the proof of concept and I think there'll be very few people who have been unhappy about this. So again, it has been demonstrated that such a move can be not only a good thing for the economy but is actually a popular move. So, now we will continue to do these with other companies and there's talk of LIC amongst other companies that are already in the pipeline and we remain committed to doing it.
UPI is India's success story. The number of banks under UPI has only grown since July 2016 to almost 300, and the volume of transactions is close to 5 billion per month already. I, as a firm believer in India's digital success story, feel that this is far too a small figure for our population size and penetration potential, and we'll get to 50 billion UPI Transactions per month in another 4-6 years.
Now, the FM stressed digital commercial banking operations extending to other parts of the country, and this is when commercial banking has already grown in India with a network of over 400 million Jan Dhan Accounts. Where do you see the opportunities for expansion here when it comes to financial inclusion?
Financial inclusion is a very important and well-established aim of this government and we've tried to do it in multiple ways, one of them obviously being the Jan Dhan effort which has now been around for some years. Also, using the postal network, something that was mentioned yesterday in the speech as well. But ultimately the simplest one is the fact that everybody now seems to have a smartphone of some sort and even feature phones being able to enable financial inclusion.
The basic idea is that some sort of financial inclusion should reach everybody. Obviously, this requires a certain level of information portals and information utilities that have to exist, the payment systems that have to exist. We have seen the NPCI, for example, largely as a utility platform to provide the backbone infrastructure for [digital inclusion]. The private sector is very welcome to, use it for other things but we have not created, unlike other countries, platforms that tend to be owned by individual companies.
We have created a general public platform which other people can use for building things.
Having Aadhaar as an identification system is also an enabling infrastructure. So we've got what some people call it the 'India Stack' but the basic point is the system is laid out now it's up to those who want to do fintech or new kinds of finance or who do other kinds of microfinance or just simple plain vanilla finance [to use it].
But now because you have these digital platforms you have this unbelievable reach to the bottom so all kinds of things can be done.
Of course there are collateral things that you also need to do; like property right; blockchain has some new usages, I am not going to preclude innovation into the future.
Our point is to create a platform so that other people, particularly the private sector, does new things.
The phrase, 'Digital Rupee', after months of media speculation, has finally made its official debut on the grand stage. Now, some South American nations have experimented with central bank-backed digital currencies, but they either lacked the scale or the stability and then we have our friendly neighbour China opting for testing it during the ongoing Winter Olympics. There are a lot of questions about how it would be structured, what would be the precise role of RBI, the permissioned blockchain, the role of commercial banks, customised DBTs, and so forth. What's your take on it?
Let’s take a step back to understand this better. A currency is something which has relatively stable value and can be used as legal tender. So in this country it is the rupee.
Historically, it used to be a piece of paper with a stamp which in itself was an innovation from earlier metallic currency.
Then, the new innovation was it became electronic. So we began to have, we already do have digital rupees by the way, the one that is in your bank is a digital number and it's nobody with a stack of notes sitting there with it, right, so we already are having digital rupees in the sense that there are electronic rupees.
Most of the rupees on this planet are electronic. So the question is what is the innovation that you're having here?
This is one more step. Just like we went from metal to paper: the mode that carried the rupee changed. Same thing when we moved from the paper rupee to a digital rupee, the mode became an electronic impulse. Here, the mode that will carry the rupee will be the blockchain technology. So, the rupee has not changed as a result.
The rupee is not changing here. It is not a new currency. It is the mode of conveying or carrying or storing that rupee that is changing. The central bank is enabling that on a blockchain platform.
Now, what can you do with that? Well you can do whatever you do with the normal rupee. It's just that the mode has changed, it allows you to do various kinds of innovations, various kinds of payments; all of that all the things that the blockchain can do, can be done.
This is not to be confused with the whole debate about cryptocurrencies and crypto assets because that is a different thing. That is about issuance. Blockchain can be used for all kinds of things, including just as [mode of] conventional rupee as we are trying to do. The point about crypto assets is the issuance part i.e., something like an algorithm issues the asset. That is a different thing altogether and not to be confused with this [digital rupee].
To our last question now. MSP is integral to crop diversification, yes, but for legacy reasons and in the most ironical fashion, it itself is the biggest hindrance in crop diversification, and as we recently realised, to private sector participation in agriculture. How do we get out of this loop to nowhere?
MSP is an important part of our agriculture policy and food security ecosystem. It is necessary to provide certain amount of stability to prices for the farmer and farming community and let's not throw the baby out with the bath water. All this procurement we were doing did enable us to provide the free ration and even the other programme cushions that we provided were possible because we had these procurement systems in place.
However, there is a price we pay for it which you mentioned. It causes price distortions that discourage growing of other kinds of crops, particularly millets and pulses and things that historically are not a part of the main procurement.
Now, you can widen out the procurement itself so some of that is also being done but in the end you also have to encourage other forms of farming which provides for the wider ecosystem of cropping otherwise indigenous crops, indigenous seeds will slowly die out. Or more sustainable forms of agriculture and particularly those based on natural systems will begin to be affected. So we have to work harder and try to revive these other things.
Now, you cannot shut one down and start the other. An effort is being made and you may have heard that in the budget speech as well. We are trying to encourage these more natural forms of food-growing because after all, remember, it's no point growing more food because remember our population is no longer growing; it's growing at maybe less than one percent, and not too long from now stop growing all together, because our fertility rates have declined and we are urbanising. We have to diversify and some of this is happening because we are moving into proteins.
Dairy is growing as well, fisheries is growing too, so there has as to be a more holistic growth in agriculture than the older idea that somehow let's get out there create more food, sort of the green revolution kind of thinking which may have made sense at that time because we were a country which had, at that time, serious food shortages.
Now, our problem is not famine, it is better nourishment, it is environmental consequences.
The consumption pattern is also changing and it brings us back to the point where we started—it has to be the era of agile policy making, not waterfall policy making.
Absolutely. We have to change with the times and there are many existing assumptions in our thinking that have to be re-examined. For example, everybody says we must build ever more schools. Well actually, there are parts of the country where we need to shrink schools because there aren't enough young kids in those parts of the country because the birth rates have fallen so far down, migration has happened.
Rather than have these preconceived notions about what we need to do, we need to rethink the whole thing, go back and question if a certain policy, implemented in a certain way, makes sense today.
As you are no doubt aware, Swarajya is a media product that is directly dependent on support from its readers in the form of subscriptions. We do not have the muscle and backing of a large media conglomerate nor are we playing for the large advertisement sweep-stake.
Our business model is you and your subscription. And in challenging times like these, we need your support now more than ever.
We deliver over 10 - 15 high quality articles with expert insights and views. From 7AM in the morning to 10PM late night we operate to ensure you, the reader, get to see what is just right.
Becoming a Patron or a subscriber for as little as Rs 1200/year is the best way you can support our efforts.