'Self-reliance doesn't mean self-sufficiency'
For Dr Aravind Panagariya, Padma Bhushan recipient and Professor of Economics and Indian Political Economy at Columbia University, India has arrived. In a freewheeling conversation with Ranen Banerjee, Economic Advisory Services Partner and Government sector Leader, he emphasises that India will become the third largest economy in six to seven years. Upbeat about India’s growth story, Dr Panagariya holds forth on rupee depreciation, India’s free trade agreements, globalisation and his own upbringing in a middle-class family.
Excerpts from the interview
Ranen Banerjee: You are the former Chief Economist of the Asian Development Bank and have worked with the World Bank, IMF and UNCTAD in various capacities. What are your views on the global economy, impending recession and the geopolitical scenario?
Arvind Panagariya: This is a very wide-ranging question. The Fed Reserve has been raising interest rates and that is creating some turmoil. So that has led to some depreciation of the currencies. In fact, the rupee has depreciated less, the euro has depreciated quite a bit and some of the weaker currencies have depreciated quite dramatically. Even the Chinese yen has depreciated more than the rupee. I think we are handling our macro reasonably well. The Reserve Bank of India actually was quite vigilant and unlike the Fed Reserve, which was extremely slow to begin responding, the Reserve Bank did act on time. So for India, unlike a large number of observers that I see in the media, both in the print as well as electronic, I’m not worried at all. Actually, I think, our macro remains robust, fiscal consolidations can begin to proceed and some bit of depreciation that has happened was much needed. There is room for a little more. Prospects to me look good. Our month-on-month inflation has remained relatively stable. Both the IMF and World Bank have lowered India’s GDP growth rates for 22–23. I think the growth rate will turn out to be higher than what’s predicted by both of those institutions. I will not be the least bit surprised if the 22–23 growth rate actually ends up at 8%.
Ranen Banerjee: India is in an economic partnership with the UAE and has signed a trade pact with Australia. Advanced negotiations are also under way to sign free trade agreements with the UK and the EU. Do you think that is the way ahead for India?
Arvind Panagariya: It is absolutely essential that Indian products remain competitive against foreign products because that helps us both on the import side as well as on the export side and particularly from the export viewpoint. It is even more critical that we don’t want our export markets on account of the exchange rate, which puts our products in the world markets at a disadvantage. For me, actually it would be important to also lower our own external trade barriers.
I’m very pleased that the government has embarked on signing free trade agreements. At least that opens one avenue to liberalisation. What we really need to do is to sign such an agreement with very large economies. What we really need for liberalisation to really pay us in some way is to sign an agreement with the European Union. I hope we continue to advance in that direction.
Ranen Banerjee: Clearly, we need to grow our exports and, and you said that we need to also lower our barriers now. How does one then reconcile this so-called new-found enthusiasm for FTAs with India’s trade-policy stance with the self-reliant India initiative that believes in promoting domestically produced goods over imported goods?
Arvind Panagariya: There is always a fallacy here. It is that self-reliance is not self-sufficiency. I’m self-reliant because I pay all my bills, but I’m not self-sufficient. I mean, I have to sell my services to Columbia University and then get my salary and then I buy a number of different things based on my needs and depending on who sells – wherever I can find better prices is where I purchase my goods. So as long as I’m not incurring any debt, I am self-reliant. That goes for countries as well. As long as they are not counting on too much foreign debt, they are self -reliant. But that doesn’t mean that you don’t trade; trading is not going to disappear. Also when you are exporting, you are producing domestically. This is an incredible kind of illusion that people have – that only when we stop imports and start producing domestically, then we’re producing products at home.
When you export, you're producing at home and you are producing those products at which you are the best, because you won’t be able to export them unless you are actually best at producing them. For example, automobiles, the robust industry that it claims to be: Let it compete. Why are you punishing customers who have to pay one and a half to twice the price that anybody else buying the same automobile outside India has to pay?
In the interest of the country itself, produce what you are best at, and that is the set of products that you are going to export. When you are going to cut the imports through protection, you are going to encourage the less efficient industries, and you are going to punish your exporters, because ultimately, capital is going to flow out of the more efficient industries into these less efficient industries. Ultimately, the capital has to come from the other industries, which are more efficient, but unprotected.
It is important to move your resources, move capital into industries where we are the best, and globally best, that is.
Ranen Banerjee: It has been a while since we are seeing major disruptions in the global supply chain space. And that clearly brings in risks to the local economy. Any measures that you believe India should be undertaking towards mitigating the risk that it faces from such disruptions?
Arvind Panagariya: If you look at the disruptions in the supply chains, they are largely the result of the pandemic that disrupted a lot of things. And I won’t worry too much on that account, because, you know, in the end, whenever there is such a massive global shock, supply chains will get disrupted and they will be restored, and they will rebuild themselves. Now, I think it can nevertheless work to India’s advantage and have longer-term significance because the confidence in our neighbours has decreased. That actually opens up an opportunity for India and most multinationals are looking for another location for their production activity.
One last thing in this context, I would say is that – and that gets a lot of play in the media – is that deglobalisation is happening. I think this is again completely nonsensical because if you look at what is happening, hardly any deglobalisation has happened.
Determined exporters find ways to send their products to other countries. Importers who need their products find their ways to get the products. For the first quarter of 2022, trade has expanded over 16% over the first quarter of the previous year. Trade is growing, and going to continue to grow.
Ranen Banerjee: You have served as the First Vice Chairman of NITI Aayog. Can you recount some of your experiences and share with us some initiatives taken then that are now bearing fruit?
Arvind Panagariya: We started by reorganising the institution. We downsized it. We also introduced lateral entry. Internally this structure had to be adjusted in terms of what different verticals within the institution were going to do. So that is now all in place. When you say bearing fruit now, that certainly has happened now. The innovation mission at the time we started, I really didn’t how important that mission will turn out to be. And now that mission runs extremely well. It’s in a steady state now. Privatisation, we started that, although no single privatisation happened while I was still there. But it has now. The aspirational districts programme was in the nascent stages. Now it has gone quite far. I left in 2017. It has been now five years and a huge amount of progress has happened. I had also participated in the drafting of the National Medical Commission Act. That was a very important reform.
For the bureaucracy we ought to measure outcomes, not the inputs. It’s a lot easier to measure the inputs, how much was spent, or how many teachers got hired or how many health workers got hired. But I was very insistent that whatever the outcomes are in each of these areas, it is the outcomes that ought to be measured.
Ranen Banerjee: You have authored several books. India: The Emerging Giant (2008, OUP, New York) was listed as a top pick of 2008 by The Economist. How do you perceive India today? What do you think is an effective leadership style for corporates given hybrid ways of working and the young demography?
Arvind Panagariya: That is a very good question. If I were to actually write a similar book today, I will certainly not call it Emerging India. India has arrived. It is the fifth largest economy today. In my view, I think it will become the third largest in six to seven years. The IMF has gone ahead and said the same thing. In 2027–28, it will become the third largest. India has actually moved into a higher growth trajectory. And it’s not cyclical. Through the entire book runs the theme and I talk about many of these social policies. I say that look, cash transfers can do better. At that time nobody was listening. I was the lone kind of advocate of transfers at the time. Today, cash transfers have begun and it has become really the preferred way of doing things of the government nowadays. New social programmes, if they are directed at assisting the poor, then these are the things taking the form of transfers. Labour laws have been passed, but they still have not been notified really with rules and regulations. So that needs to happen as well.
Ranen Banerjee: You have been versatile and in multiple jobs. What has been the most rewarding and given a chance would you do anything differently?
Arvind Panagariya: The wish of my father was to see me as an IAS officer. But fate had something else in store for me. For me, it has been really enjoyable. Whatever I’ve done, I’ve enjoyed very much. When I came to NITI Aayog I was really very scared. This was a gigantic responsibility. I had apprehensions, but looking back, I think I feel proud of what I was able to do and accomplish. For an academic, I have evolved. I started out as a theorist. When I went to the World Bank, I began to move into policy and that was a bit of a turning point. I write on India, occasionally I write on trade policy, but largely my work is now on India. My current book is on the Nehru era and how it impacted the Indian trajectory. This is a very heavy economic history, history of economic thought of that period. I’ve been reading an awful lot and on what was done in that period that continues to be relevant.
In terms of what would I like to change? If I were unhappy with how life has been, then I would have to speculate. That’s certainly not the case. And given where we started, we were a very ordinary family. Middle class, if you could call it that, because in those days, even the middle class are today’s poor. My brother and I, we went to Hindi medium schools, not the kinds of schools to which most of the people I meet now go to. At the end of the day, we came out of it and that experience actually turned out to be very valuable and it keeps you humble.
Ranen Banerjee: Thank you, Professor Panagariya. We have received lessons in economics and trade and also got some life lessons and how we should remain optimistic with those ending comments.
Arvind Panagariya: My pleasure. Thanks for having me for this very interesting exchange.
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