Interview with Sanjeev Sanyal

Q. Every time there is some uncertainty especially in Middle East area, there is always a risk of that volatility in the global crude price because seeing the how much dependency we have. The current account deficit gets affected. So, do you think that we need a rethink on the strategy towards how we are going towards the energy, maybe increase the strategic reserves

A. Our dependence on imported energy is a long standing issue. So, there are many things that we need to do.

First of all, we need to be able to build capacities in renewables such as solar, and other non-conventional sources like nuclear. Second, we need to find resources domestically because in the end we do need to have some amount of hydrocarbons other than the limited coal reserves. We have been historically quite poor in gas and crude resources internally. In this context, there have been some interesting developments in Andaman and Nicobar and we will be pursuing these finds. Thirdly, we have to keep our sources of imported energy as diversified as possible because in an uncertain world, we can never tell where the blockages will be. Sometimes it may be in Eastern Europe, sometimes Middle East, some other day it may be in East Asia.

Since we cannot predict disruptions, keeping our sources as diversified as possible is an important part of our strategy. And finally, it is important that we also have some amount of storage strategic reserves so that at least in the very short run we can take the shock as happened very recently in the Iran-Israel conflict. So, all these four are part of the current mix of our strategy for dealing with these energy shocks.

Q. The Chabahar port has been very crucial for India, but seeing the tension that is there around Iran and that is very frequent we see in the Middle East. So, is it wise like we continue those because the investments might be affected in Chabahar?

A. Chabahar is part of a network of relationships we have in the Middle East. We have strong relationships with UAE, Oman, Bahrain and more recently through the IMEC with Saudi Arabia.

So, you cannot see any one of these things in isolation as we recognize that this is a somewhat unstable area. Therefore, India has a network of bilateral relationships with countries there because we need to be able to be flexible in our approach. So, for example, Chabahar is part of not just of our Iran strategy but also our ability to connect to Central Asia and even Armenia.

At every point in time you have to maintain multiplicity of options and Chabahar is one of those options. When you are dealing with an uncertain world, you need to have optionality.

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Q. With the global uncertainty situation also, there are estimates that the global trade will be slowing down. Are there any concerns on our exports going ahead because that also forms a very crucial part of our GDP when we are aiming to become the third largest economy?

A. On our own steam, India can grow steadily at about 6.5% but if we want to grow at more than 7%, then we need an environment where we can export aggressively. Unfortunately, the environment for external exports has been quite unsettled now for last several years and that is something we can't directly control. However, we are trying to work our way around this by doing a large number of bilateral FTAs. We have already seen FTAs with Australia, Japan and UAE, and more recently with the UK. We are now in advanced discussions with the European Union and the US. The WTO world has broken down. What I think will happen in the medium term is that the world will end up as a network of bilateral trade deals. Most likely, there will be two large centers of gravity in that; one will be the US and the other will be China. The rest of us will have to find some accommodation in this network. We have kept out of RCEP but, on the other hand, we are building these bilateral FTA relationships with a large number of countries.

Q. What is your view of how much India could gain from this India-US BTA?

A. Those are negotiations happening but I am not in a position to comment on current status. Both sides are serious about it and quite a lot of ground has been covered already. There may be some sectors where there is difference of stands, but these will be negotiated to the satisfaction of both parties.

Q. Is there any concern on by when will we achieve that being the third largest economy?

A. The estimate now is that at some point in 2026-27 or 2027-28, we should become the third largest economy in the world in US dollar nominal terms. In purchasing power dollar terms, we already are the third largest economy in the world.

Q. Which sectors or areas will be boosting this growth?

A. So, there are large number of sectors that are growing. As has been for some years, the services sector has been the driving force of our economy. It is now more than two-thirds of the economy. Even on the export front, our services are bigger than our goods exports. So, the big driver of our growth so far has been services, both domestic and externally. The manufacturing sector did go through a great deal of churn in recent years but you are beginning to see certain sectors doing well, the electronic sector is doing well, the defence sector is now coming up quite well and then you have also the construction sector where there is a lot of construction of infrastructure that is coming through. Many of the very big projects are going to be completed in 2025-26 like Jewar airport, new Navi Mumbai airport, many of the transportation projects in Mumbai. So, new projects, particularly like railway upgradation, etc., will now become the focus. So, all of this generates growth.

Q. Are we depending more on the domestic consumption or the domestic engines to fire growth.

A. Yes, the economy is currently growing somewhere in the range of 6.5 to 6.8% range and it is almost entirely driven by domestic drivers. This is very strong compared to the rest of the world, but if we want to grow at 7% plus, we do need exports. While services exports is providing some momentum, we do need to get goods exports to do well as well. There are some segments like electronics that are doing well, but for a wider momentum the FTAs need to fall in place; then we will be in a better position.

Q. Do we need that 7% growth to become the third largest economy?

A. We will get to the third largest economy whether we get the 7% growth or not because we are growing so much faster than other economies. We will reach there faster if we have 7% plus growth, a bit slower if we had 6.5%. By the way, we are already the world’s third largest in purchasing power parity terms.

Q. Any reforms that we need urgently to boost that kind of growth?

A. Domestically we are doing a very large number of process reforms. These are the nuts and bolts reforms that very often don't reach the headlines. So, for example, we are working on improving the EPFO and IEPFA processes for the ease of living, then we are removing outdated laws and government agencies, and we continue to do more of these.

Similarly we are looking into what are the rule changes that we need in order to allow Indian multidisciplinary consultancies to be built in global scale and so on. So, there are large number of small reforms that are being done, and a several of them are being driven by the Prime Minister's Economic Advisory Council.

Q. Are you hinting at the reforms needed for India’s big four

A. It is not big four, it has to be big 4 plus three, because it is a big four of audit firms plus three global consultancies. In audit, it is dominated by four companies, but if you get into consultancy, there are three more companies. So, take it as Big Seven. It is ironic that all these big seven companies are heavily dependant on Indian talent, but there are no Indian big seven multidisciplinary consultancies. Note that the consultancy industry is a factor of magnitude larger than the audit industry. So, this is an area where we should see Indian companies. There are many issues that need to be looked into in this. Most of the changes actually need to be made by the professional bodies, but nevertheless, the government can also encourage the changes.

Q. Can there be any kind of incentive in this area? Like a PLI for services?

A. First of all, we need to remove the impediments for these multidisciplinary consultancies to emerge. So, you can only begin giving incentives after you remove the impediments. The first step is to remove impediments and the biggest impediment to this are the internal regulations of each of these professional bodies which do not allow multidisciplinary consultancies to emerge in India.

Q. When the government or the PSUs, they hire these consultancy, there is a threshold of Rs 500 crores.

A. That is one small part of the problem. Tendering rules are an issue, but the biggest issues are not the tendering rules. The real problems are the internal rules of these professional bodies where the ICAI, Bar Councils etc. All of them are basically trying to regulate their professions in isolation whereas the game is of multidisciplinary consultancies. After all, PWC does not only do audit. McKinsey does not only do management consultancy.

They give multidisciplinary services worldwide. So, how do you create a multidisciplinary Indian equivalent? You cannot do so in India because each one of the professions does not allow multidisciplinary consultancies to emerge. Furthermore, they discourage brand-building.

Each professional body wants to protect its little turf. So, therefore, you cannot have these multidisciplinary firms. So, we need to change these rules to allow multidisciplinary consultancies to emerge. Foreign companies operate in India by essentially creating proxies of various kinds.

In each field, they create a separate proxy in India while they can create a branding abroad. Meanwhile an Indian company cannot create a brand in its home market. This why Indians are never able to create multidisciplinary consultancies because the professional bodies do not allow you to do it. There needs to be more interaction between the professional bodies themselves. They have to begin to think about this issue in a holistic way rather than in a narrow perspective of their little turf.

Q. But can government also support like?

A. Government can support but ultimately, these bodies have to build a national consensus on this.

Q. I saw one of your tweets on Nike, that they had made Bangladeshi person as the brand ambassador for Indian advertisement, and you had tweeted that for them all brown people appear same. Can you pls explain.

A. My simple point is that when a multinational company wants to do something targeted at India, it is strange that they do not do the basic research. MNCs entering into India do need to be aware that if they are doing a targeted campaign towards an Indian consumer, that there are certain Indian sensitivities and they should be aware of them.

Q. Now US has come out with a legislation on some part of stable coins on the crypto. The Indian government is yet to make up its mind on the crypto. RBI has been against it. What is the way forward that you see for crypto in India?

A. I have stated for quite some time that there are two parts to a cryptocurrency. One of them is the blockchain technology, which is a distributed ledger, and the other is the algorithmic issuance of tokens. These are separate things. A cryptocurrency basically combines these two. The algorithmic issuance of tokens is not an innovation at all. This could have been done years ago. It is the blockchain, which is a distributed ledger, that is the innovation. But that innovation, while it is useful, does not mean that we have to be excited about algorithmic issuance of tokens. After all, we do not allow anybody to issue currency in India. So, why should we allow an algorithm? This is my personal view, that the algorithmic issuance of tokens should not be allowed. The central bank must have a monopoly on issuance. The state has a monopoly on issuance of currency and that should not be disturbed. However, blockchain can be utilized as a ledger. After all, the Indian rupee exists in many formats. It exists as a coin, it exists as a note, it exists in electronic form. So, it can also exist in a blockchain compatible form which is basically what a stable coin is. I am not in favour of algorithmic issuance of currencies. It has to remain in the control of the central bank.

Q. Inflation is quite controlled for some time. Do you think period of high inflation is now over or are there some risks?

A. Inflation has come off very significantly despite the recent spike in oil prices. So, as things stand, it looks like there is no real pressure on inflation and the Reserve Bank is quite right in having taken the space to both reduce interest rates and reduce the CRR to improve liquidity. I think the Reserve Bank's actions are in line with the reduction in the inflation and they are absolutely correct in their assessment.

Q. Do you think there is still a need for revising inflation framework targeting? There were some views that it should be raised upwards?

A. I think the 2 to 6 percent range has worked well for us and this should be fine. What needs to be done perhaps is to revise the CPI basket and base-year. We need a more modern basket which reflects today's consumption basket. That will be a better reflection of actual inflation in the system. We have done recently a national consumer survey, so based on that. I believe MOSPI is in the process of working on it.

Q. The private CAPEX has picked up, but are there still any concerns?

A. There is capex momentum brewing. There is liquidity in the system, cost of capital has come down, there is momentum in the economy, capacities are utilized. So, I expect the private capital expenditure to do reasonably well over the next few years.