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'We face the risk of remaining a low-income country for a very long time unless something changes in the next few years.'
'Instead of constantly talking about becoming a developed economy, we need to start fixing the problems of the economy one by one.'
'There is so much potential, and we are squandering away the opportunity.'
Will the 2025 Budget trigger growth in the economy when there is no demand in the domestic market, when employment opportunities are down, when wages are stagnant, when private investors have no confidence in the market?
"Every year, millions of youth are entering the work force. They are not able to find jobs, they are not able to get jobs that would do justice to their aspirations," Dr Rajeswari Sengupta, Associate Professor of Economics at the Indira Gandhi Institute of Development Research, tells Rediff.com's Shobha Warrier in the concluding segment of a must-read interview:
So, though the government talks about ease of doing business, it is not there..
It is not there particularly for multinational companies.
If you are a big domestic guy then you are fine.
There is no ease of doing business for a company coming from outside.
That's how countries like Vietnam benefitted so much from the China Plus One strategy.
We are so much bigger than Vietnam but while our FDI started falling at a time theirs was benefitting.
Not only did we miss the manufacturing bus, but we also missed the goods export and FDI bus as well.
This is very costly for India because these would have been proper engines of growth which would have had longer lasting sustainable effect on GDP growth as opposed to government capex and all these other temporary measures.
If you view the Budget against this background, you will see that the economy fundamentals are not doing well, and it is the structural problems in investment, manufacturing, goods export, FDI that is causing the problem.
And you don't see anything in the Budget that addresses these problems.
But the government's narrative is that nothing is broken. So, they need not fix them.
The big danger is that they are underestimating the magnitude of the problem.
What about unemployment?
Every year, millions of youth are entering the work force. They are not able to find jobs, they are not able to get jobs that would do justice to their aspirations.
This is a serious problem.
India's per capita GDP is $2,600 and we are rank 141 in the world.
These are some of the problems the administration chooses to overlook.
That's why they announced the tax cut in the Budget. They think that the problem is temporary, and a tax cut will resolve it. It won't.
In fact, the probability of saving the money is much higher than spending it. People may also use it to repay their loans.
I won't be surprised if bank deposits actually go up. I very much doubt whether this will give a boost to consumption.
Growth is in serious trouble, and there is a huge 'demand weakness' in the economy.
Private investors also have no confidence in the economy...
They have no confidence because there is no demand.
Private investors have no risk-appetite. Their appetite is completely squashed because of the uncertainty of the policy environment.
One fine day, the government will impose an export ban, or impose tariffs on certain items. As an investor, I don't know what tomorrow is going to look like.
On the other hand, if you look at the overseas investment by Indian firms, it has gone up.
So, it is not like the Indian private sector is not investing, it is just that they are not investing in India.
My question is, you are saying th Indian economy is the fastest growing in the world, then why is the private sector not confident enough to invest?
That is the root cause of the problem. But the Budget did not even acknowledge it, forget about addressing it.
There is a denial of the actual problem.
We need to bring back the impetus to doing reforms and there is a long list of reforms to do in a country like India.
If the government shows the inclination to do reforms, then the private sector will show confidence in the market.
But according to the government, there is no problem...
Yes, if you don't admit that there is a structural the problem, you will not fix it.
If India has to achieve 7% to 8% growth rate, the private sector's animal spirit needs to be revived.
Otherwise, there is no way we are going to grow at 8%.
But the prime minister said this Budget would fulfil people's dreams towards a developed country...
I think it is more political than economic. If it is that easy to be a developed country, the world would have had only developed countries.
I think instead of constantly talking about becoming a developed economy, we need to start fixing the foundational problems of the economy one by one.
There is so much potential, and we are squandering away the opportunity.
They don't realise that the demographic dividend you have now is not infinite. Once you start aging, it is irreversible. You can't wait till the country becomes young again.
A UN report released last year says, 20% of India's population is 60 years and above! By 2050, India's population will start aging as our fertility rates are dropping.
It is just 25 years away, and as an aging country, you will have huge fiscal pressure on the government. Is the government ready for new tax revenues to attend to an aging population?
The demographic dividend is not going to last forever.
The question is, are we going to become older before we become richer? If that happens, it will cause a whole lot of problems.
We face the risk of remaining a low-income country for a very long time unless something changes in the next few years.
IMAGE: Rajeswari SenguptaIs this not like a bubble? Will this not burst one day?
It will. It is already happening. You just take the job situation, for example.
If you are the largest and fastest growing economy in the world, if all the foundations and structures are so strong, then why does the government need to give free foodgrains to 800 million people every year?
It is so contradictory.
Most people have forgotten 2019 when GDP growth was less than 4%.
My sense is, we will probably go back to something like that. I don't see how we are going to avoid that given the situation the economy is in.
Right now, I am pessimistic about the Indian economy in the long run. I really don't think that we will be able to become a high-income country, forget about developed.
We will remain a low-income country, and a large number of young people will migrate to other countries.
Labour is already going to where opportunities are, and that trend is going to intensify even more.
The middle class who are left behind will be happy with the welfare schemes.
I don't know how we are going to come out of this classic low-income trap.
Feature Presentation: Aslam Hunani/Rediff.com