The economic slowdown has bought with it numerous questions but very few answers.
For example: Where is the Indian economy heading? Are we out of the woods yet? What is the way ahead for the Indian economy?
How can we develop the kind of infrastructure that has helped the Western world and Asian giants like China and Japan succeed?
How will climate change and carbon emission-cuts affect the Indian industry?
Dr Ajit Ranade discussed these issues with rediff readers on Tuesday. Here is the transcript:
Ajit Ranade says, Hi everyone.
vkmutalik asked, Is the Indian economy out of the woods as far as recession is concerned or are we on the brink of a bigger problem?
Ajit Ranade answers, at 2009-12-22 14:06:04 India had a slowdown not a recession. For last four quarters, the quarterly GDP growth has been 5.8, 5.8, 6.1 and 7.9. Thus we seem to be coming out of the slowdown phase.
jawa asked, Hi, Ajit, do you agree the single biggest hurdle facing this country to move to the next level of development is infrastructure
Ajit Ranade answers, Dear Jawa, yes indeed infrastructure is a huge challenge. that includes both soft and hard infrastructure. ie. education and health on one side and roads and electricity on the other side.
krishna asked, Hi sir. What is the one biggest positive development we in India can expect in the new year?
Ajit Ranade answers, Dear Krishna Please wait for three big positive developments.(a) national rollout of goods and services tax regime, which will unify the country into a common economic area. (b) a new income tax code which will reduce the tax burden and (c) fresh recommendation of the 13th Finance Commission which will hopefully empower local self governments. apart from that we may also get a 46th sachin ODI century :-)
balbir asked, I wanted to know the population effect on economy.
Ajit Ranade answers, India's popn is growing at roughly 1.8 per cent. But the workforce ie people in the age group of 18-60 is growing at 2.5 per cent. This age group will work, earn, spend, invest, save, pay taxes and contribute to productivity. that's the virtuous cycle of demography. this clear advantage of 0.7 to 1 per cent (diff between workforce and popn.) will remain with us for another 25 years.
LK asked, Inflation is increasing and recession is still there. In this situation how we will manage our money.
Ajit Ranade answers, Dear LK as i said earlier, there is no recession. but perhaps a slowdown which is ending. but inflation is a very serious problem. much of it is food inflation and cannot be solved merely by monetary policy. if unchecked, it can also hurt our economic growth
harish asked, Divided Andhra? are such divisions are good for governance and economy?
Ajit Ranade answers, Dear Harish, the breakup of Andhra or any other state is not merely an economic issue but also a political and social as well. there are cultural and historical factors as well. but i think if we had genuinely devolved powers to local governments ie village and city councils as per the 73rd and 74th constitutional amendment passed in 1993, we would have had fewer demands for breakup of states.
TM asked, There is lot of unskilled labour force which goes away from the country to work in places like gulf, and in India when we go in search of an unskilled or semiskilled labour, it is hard to find it, Why this disparity. Can we do anything about it?
Ajit Ranade answers, Dear TM, one of the biggest challenges for the indian economy is how to quickly absorb the vast army of semi-skilled and unskilled labour from agriculture, which is low paying into industry and services. there are a lot of skill-mismatches when it comes to demand and supply of unskilled labour. hence not surprisingly, our labour goes to middle east and we have to import chinese labour. this is what is called labour-market friction in economic jargon. we need to address this problem.
TNShekhar asked, Hi Ajit, today I heard Montek Singh Ahluwalia say that food prices will start to decline from January 2010. Do you share his optimism? For, frankly, I have not seen any policy measure that will curb runaway food inflation. And the agriculture minitser actually said that food prices are rising because of climate change! Any comments, sir?
Ajit Ranade answers, Dear TN Shekhar I do hope that food inflation will come down soon. it is true that food prices are much more volatile than general prices. and hence food price inflation episodes are short lived. but unfortunately food inflation in india has been ongoing for more than a year. hence i am not as optimistic about this inflation coming down quickly. there are both supply and demand factor affecting food prices. eg GDP is increasing at 7 - 9 per cent but food production is barely increasing at all. further with increase in income people shift to meat and poultry which means food grains have to be produced for humans and animals. these are demand factors. on the supply side we have drought and notorious imperfections in the food distribution system. eg we have record 50 m tonnes of food stocks and still wheat and rice prices are rising
avidread asked, There is a view that Indian economy did not suffer simply because we did not globalise enough; and unless we globalise, we cannot remove poverty. So even if we suffer downturns, in the longterm, globalization will be better. Your comments?
Ajit Ranade answers, Globalisation is not a choice. the choice is how do we cope with globalisation. it is true that our dependence on exports and foreign inflows is less than many east asian countries. but globalisation which includes trade, investments, ideas and labour flows is integral to indias economic development.
miltonfriedman asked, Don't u think in a country like india where the government is spending taxpayers money (1% of the population) without any accountability to them in regards to how wisely they spend it, makes people dislliousned about the system and effectiveness of governance?
Ajit Ranade answers, there are approximately 4 crore people who file taxes out of roughly 20 crore families in india. to get better governance ie better accountability and transparency we need more citizen engagement and pressure. it is as if we citizens are shareholders and the government is the management which is hijacking our company.
pramod.dsouza asked, Sir, wanted to check if we have any GDP numbers from urban India v/s rural India? My understanding is that we have 70% living in rural area.
Ajit Ranade answers, Dear Pramod, We do not have a break-up of rural and urban gdp. but here are some trends: a. rural is no longer equal to agriculture. b. rural purchasing power was rising as fast as urban in the recent past. c. agriculture now benefits from two cropping cycles ie rabi and kharif. d. non-food crops are as important as food crops. e. the percentage of people directly or indirectly dependent on agriculture is now less than 60 per cent.
chandrakant asked, Dr Ranade. Namaskar. How is USA's coming out recession is important for the world ?
Ajit Ranade answers, Dear Chandrakant The USA is the largest economy and accounts for 1/3rd of global gdp. even with zero per cent gdp growth, it produces more than 12 million cars annually. that just shows the economic might of the USA. hence american consumer spending is crucial for many developing countries since they are directly or indirectly dependent on it. most asian tiger economies owe their growth the US consumer spending. India's dependence is relatively less but in certain sectors like IT, gems and jewellery, we are vulnerable.
JoydeepChakraborty asked, Dear Ajit, if infrastructure is such a huge problem for India, why doesn't the government use the gigantic foreign exchange pile it is sitting on to address this issue? What is the resistance to doing so? Could you please clear the cobwebs in my mind over this?
Ajit Ranade answers, Dear Joydeep The large pile of foreign exchange (approx $300bn) with the RBI is not the government's property. if it wants to use that money it will need to borrow it from the RBI. and in any case most of the infrastructure like roads, electricity, etc does not require dollar payments. the main problem is the government's huge indebtedness. it is not lack of available finance but the lack of available fiscal space ie borrowing space.
shravan asked, Hi Ajith What is the solution do yu think to adress farmlands being converted to factories / is there any way that economy and pullution do not conflict with each other ?
Ajit Ranade answers, Dear Shravan, With food shortages, obviously converting farmlands to factories is not a good idea. however this issue is more complex. for eg if a farmer gets twice as much annual income by shifting away from farm to factory would he still remain in farming? on the trade off between economy and environment - i think there is a lot of awareness, and even the law provides a lot of safeguards. india was one of the first countries in the world to introduce environmental legislations back in 1972 and 1986. the problem of urban pollution however is new.. mainly from transport.
xyz asked, What are the prospects of real estate in the next 2-3 years in India?
Ajit Ranade answers, please note that the rate at which india is urbanising is far in excess of the capacity of cities to build new houses. this is true in most states of india. urban centres are where jobs are being created. and also where newer markets thrive for retail businesses. hence urbanisation is inexorable. this implies that real estate will always be influenced by supply shortages. so expect real estate prices to keep going up. occasionally there will be bubble corrections.
kkr asked, sir, my second question to you .. Is it possible to safegaourd our business interests against future carbon emission-cuts which may come into effect under global pressure ?
Ajit Ranade answers, dear kkr It is important that indian indsutry be prepared for changes in global as well as domestic regulations regarding carbon emissions. sooner or later we will be subject to much more stringent norms for emissions, power efficiency, use of alternate sources of energy and so on.
Priyanka asked, how banks can play role in the developemnt of underdeveloped region???????
Ajit Ranade answers, Dear Priyanka Much of financing in india is bank-dominated. yet more than 50 per cent of indians dont have a bank account. so we are far away from our goals of financial inclusion. a lot of small and medium enterprises have no access to funding or have to fall back on moneylenders. hence it is certainly true that banks will continue to play an important role in india's economic development. the spread of micro-finance and regional rural banks will benefit the underdeveloped regions.
Ajit Ranade says, thanks everybody. it has been great chatting with you. wish you all a healthy, prosperous and peaceful 2010.
