April 17, 2024


Delighting finance buffs

Full Transcript: Sanjeev Sanyal on how govt plans to jumpstart Indian economy

The government of India’s principal economic advisor, Sanjeev Sanyal, joined India Today to provide an insight into what the government is thinking as far as reviving the coronavirus-hit Indian economy is concerned. Sanjeev Sanyal spoke to India Today TV’s Rahul Kanwal on a special edition of the e-Conclave Jumpstart India Series. Here’s the full transcript of their conversation from May 1.

Rahul Kanwal: Welcome, as part of India Today’s new series Jumpstart India, we’ve been speaking to top corporate voices to get a sense from them on what needs to be done to revive economic activity and bounce back from corona coma. Today, I want to get a sense of the thinking within the Modi government. With every sector in precipitous decline, where does the government intend to deploy its limited financial resources? My guest today in this edition of Jumpstart is the principal economic advisor to the government of India and internationally acclaimed economist and best-selling author, he’s spent two decades in the financial sector and was the global strategist and managing director at Deutsche Bank till he joined the Indian government. Sanjeev Sanyal, welcome to today’s edition of Jumpstart India. The cries for help from Indian industries, Sanjeev, are getting louder and more desperate… Everyone is wondering, is the government listening and what does it intend to do? So let’s start from there.

Sanjeev: Well, it’s not that we are unaware of the fact that there is a lot of disruption in the economy. I mean clearly when you opt for something like a nationwide lockdown, those who impose the lockdown clearly did it right up front knowing that there were very serious economic costs to doing something like that. So it’s not surprising that there is a lot of pressure on the business sector as a result of this. Now having said that, let me say that we have taken a somewhat different approach to what maybe other countries have done. First of all, as prime minister has explained on numerous occasions, we prioritize the health emergency over the economic emergency to start with. This is not because we didn’t recognize the problems with the economy, but because our view was that if we didn’t get the health situation under control, given our population and the density of our cities, it would simply go out of control and then and nothing else would matter.

So, that was our first priority. We went through the first three weeks locked down… since the 20th as you know, we have been slowly unwinding it. Now, as we go towards May 3rd, perhaps if the data allows it, we will unwind further. So what we did is a lockdown and then we prioritized the health pandemic over the economic…

Rahul: Sure, and that I have understood and we don’t want to get into the necessity of the lockdown just at this moment. I want to focus on what can be done best to ventilate the Indian economy. Today is May Day, or international labour day, and the biggest concern, Sanjeev, is around job losses. There was a CII study that came which said that they asked CEOs and one third of them expected job losses between 15 to 30 percent in their respective sectors, which essentially means that amongst people who are watching, one third of the jobs could be at risk. What’s your government doing, sir, to ensure that you’re able to mitigate the losses and minimize the damage?

Sanjeev: Again, our approach has been somewhat different from that of many other countries. Other countries may have gone for a large trillion dollar package upfront, our approach has been different. Instead what we have done is in the beginning we focused on like some sort of a cushion to the system. So whether it’s in terms of the Reserve Bank on repeatedly coming out and putting liquidity there or the effort from the government side to going out there, physically putting some food out there putting some money in the people’s pockets through direct transfers and so on. Now nobody is making the claim that that resolves the problem. It is purely a cushion. Now comes the next approach, which is that we have opted for a step-by-step calibrated approach towards trying to reopen this and as we go through this, we will carry out… several packages will be announced rather than one big one and they will be slowly ramped up. First through the opening which we are already beginning to see and then of course through the rebuilding which is the next phase, which we haven’t yet come to.

Believe me, we understand the seriousness of the situation. We have the resources both fiscal and monetary and of course the ability to do serious…

Rahul: But there is a growing sense of frustration about why it’s taking so much of time. Many countries front-loaded their economic packages and therefore industries had a certain sense of comfort. In India, there is anxiety, the comfort is still lacking. What’s taking so much time?

Sanjeev: Because as I said. We have taken a somewhat different approach, which is we are taking a feedback loop based approach and in we will ramp things up step by step, so we are telling you upfront that that is the approach we are taking. Why are we doing this? Because we are clearly in an environment where there are lots of unknown unknowns, so when we are in an involving situation, rather use up all our ammunition up front, which may work in other countries and other contexts, so I don’t want to comment on their approach. But in our approach, what we have consciously taken the decision that we will do it… ramp it over time…

Rahul: So what I want to do, Mr Sanyal, is to show you some of the comments that were made by some of the key industry voices cutting across sectors when they came on India Today’s Jumpstart India. I’ll play out an excerpt and I’ll then get you to respond to the voices that the industry is raising because it’s important to listen to what they’re saying and then see what the government view is…

Okay, so you’ve given a thre- month moratorium, Mr Sanyal, one industry voice — and many would echo this — asking for an extended one-year long moratorium on principle and interest obligation, saying industry is shut, our hotels are shut, how can we pay and meet our obligations. How do you respond and what do you think?

Sanjeev: So clearly it is a very difficult time. Nobody is disputing that and even the moratorium that was given is fully understood to be not a panacea, but merely a cushion to buy ourselves time while we begin to roll out this… there is no point in simply throwing resources in general, and there may be certain areas where large amounts of resources, like for example, keeping the financial system from gridlocking and seeing cascades of defaults, clearly we need to act there in scale and do it quickly.

But the fact of the matter is that this is not a sprint. This is at the very least a middle distance run, it may even be a marathon for all we know, so we have to take feedback and begin to roll it out and step by step…

Rahul: So can I build on that analogy that you’re drawing… you’re saying this is a marathon not a sprint, I could say Indian Inc looks at this as the patient being in ICU, they’re desperately seeking help, they’re thinking of the government as the doctor and if the doctors thinks well, I’ve got time, the patients are worried they may die by the time you there, sir.

Sanjeev: Well this is precisely why we did do some weekly thing that is that is precisely what those moratorium is about… it may be extended if necessary, obviously it’s not for me to announce specific policies… that’s the prerogative of the finance minister and the prime minister. But the fact is that we understand that this is a difficult time, it is not the case we don’t understand there is difficult time. We also understand that these initial steps that were announced is not going to solve the problem.

I mean, I’ll be the first to say that. But you have to understand that we are willing to do a lot more, but we will do it in a calibrated fashion. So for example, there is obviously you have seen the reserve bank significantly cut interest rates. Now clearly there is an issue with it feeding through the transmission mechanism, so we’re going to have to fix that. So at every stage we have to not simply announce a grand package, we have to make it work on the ground. That requires us to pay attention to the actual workings, the nitty-gritties of it, then make sure it works, then get feedback on the fact that it works and keep going, and so on and so forth. So a lot more will be done in stages and by the way this will happen a lot sooner rather than later.

Rahul: I want to show you now what Chandrajeet Banerjee, director general of the Confederation of Indian Industry, said and this is a big demand being made… I don’t know how it’s possible and feasible and I’ll ask you about that but he’s raising the point of GST and whether the government can stop taxing companies because production is down, demand is down, they’re saying the one way the government can help is by doing away with GST for a while…
So if goods and services taxes are reduced or done away with companies say they’ll be able to reduce the price of products that could potentially stimulate demand but that could also mean that government revenues collapse. Sso how do you view this suggestion from industry in a very strong passionately echoed suggestion that can we have no GST for at least the next six months?

Sanjeev: Well, we speak to all these industrialists that you are you have interview and we take their feedback very seriously no doubt and even this specific one we will take seriously as I said it’s not for me to react to any specific measure… but what I can say is that we take this feedback very very seriously… many of them are very passionately debated even within the government but as I said, we will have to do it in a… simply going out there and for example, since we talked about GST, let’s say we do remove GST from the hospitality industry which was the previous gentleman who was there. Now will it help the hospitality industry? Now it’s not obvious it will. I mean how many people do you know who have stopped travelling and living in hotels because of GST? So clearly this particular step would have one group but it wouldn’t help the other group… what so what I’m trying to say is that you have to be careful to understand that there is no one silver bullet…

Rahul: Okay, so what are your ideas when it comes to stimulating demand. One of the biggest problems in trying to ventilate the economy is how do you create demand — from the consumers’ perspective huge concerns of over job loss, therefore they’ll want to cut every single rupee of discretionary spending that they can, they’ll only focus on essential, everything that can be postponed will be postponed, but unless those people start buying there’s no manufacturing that will happen because they’ll be creating inventory and nobody will be buying that inventory, how do you think demand can be stimulated?

Sanjeev: So you’re absolutely right that there is obviously a major strain on demand. And it’s not just domestic demand. There are serious issues as far as global demand is concerned, so even if we opened up all our industries… our export sectors will have a great deal of difficulty exporting this outside. So we appreciate that issue and these are not easy problems to solve. But there is however space to do things. One of them being that of the many countries in the world India happens to have significant monetary space — a matter of point have made before as well, you know world where most of many countries have zero or even negative interest rates… we also have more fiscal space than many people give us credit for and so unlike many developed countries with very high debt to GDP ratios, our debt to gdp ratio is much more reasonable.

Rahul: I just want to cut in there because you haven’t given me any ideas on the specific question that I asked about how do you see the challenge of reviving demand. What idea — I’m not even asking about what the government will announce — I’m saying do you have any ideas about what can potentially be done about how to revive demand under the current circumstances?

Sanjeev: Of course we do, we do have and ultimately whatever those specific measures are they will boil down to the following things: one, to what extent we are able to make the monetary impulse transmit, that’s an important issue. The reserve bank and the finance ministry are paying a lot of attention to that. As I said, we have more fiscal space than maybe we are given credit for and we will use it. And of course there is a lot of structural changes, structural measures that we can also do to make ourselves more efficient, but again we have to take into account the constraints that we will be for a significant length of time in a world where there is very weak export demand. We have to take account of that. But there are positive things that you can also take advantage of. For example energy and other commodity prices are likely to be quite weak for an extended period of time although of course predicting oil prices is not an easy thing… but nevertheless I think it’s a fair chance that they will be weak for a while and so on and so forth. So I think there are areas, other area can be used opportunity to ramp up investment in infrastructure… something that we always talk about doing and in an environment where capital may be particularly cheap globally we may be in a position to ramp up infrastructure as well.

Rahul: And that’s what the Untied States did. During the Marshall Plan and after the Great Depression, creating the public infrastructure, which also saw the US through over the next several decades. I wanna show you now… Kulin Lalbhai… he’s seeking salary support…

Salary support either directly to employees or to companies which can further get funnelled to employees… now we do this for farmers, industry is saying since this is not a mess of our making, this is beyond any normal business circumstance, can the government as has been done in the United States and in countries like Germany and Japan provide salary support to at least the less well off employees?

Sanjeev: Clearly, maintaining jobs is an important issue, every suggestion including this one is being discussed and of course the other issue of liquidity and monetary support through easier credit and guarantees and so on… that too is an important issue and by the way, it’s not just about the big industry, the real big problem for this is really in the SMEs and the unorganised sector where obviously job losses will not only will happen on large scale but in many ways very difficult to track where those loses are… so these are not simple things, so we take the issue of you know, stimulating demand and making sure that there’s adequate functioning of the monetary transmission, both for payments as well as to stop something quite dangerous which is a cascade of default. Once that begins to happen financial sector jams up and it can be very difficult to revive…

Rahul: So now mentioned MSMEs, I want to build on that because, It’s a Catch 22. Virtually every sector is deeply distressed, everyone is desperately seeking your help. If you bail out MSMEs and there’s been a lot of talk from our reporters about a three lakh crore rupee package being potentially in the works for especially the medium and small size enterprises, the big companies say a lot of the MSMEs are dependent on the bigger companies to get their orders from. But if the big companies go under it’s not as if the MSMEs can survive. Financial space is limited, resources are scarce and tough to come, what is your priority in the survival stage, what is your priority?

Sanjeev: Obviously, we are in the ecosystem where everybody depends on everybody else, so it’s not like we have anything against the big companies. It’s just that one of the issues of monetary transmission has been the difficulty of getting credit through to the MSME sector because you know, what happens is there is a rush by financial systems to safety in which case even viable MSMEs often find it very difficult to get credit. So you have to provide some extra love and care for the MSME sector, they do employ a very large number of people and since… if there is a problem in that sector in terms of employment t will ultimately feed back to demand for the products of big companies. So, you know, it feeds in every direction. So a very important part here is to make sure that the chain and flow of cash, the cash flow of the economy is maintained. The big companies are an important part of that no doubt about, but the small companies have a real problem because very often even if you ease credit conditions, even if you interest rates it simply does not feed through this MSME sector. So that is why some extra love and care is very often needed for this sector.

Rahul: Okay, so we’ve spoken of blue collar workers, let’s for a moment deal with unorganized sector and the labourers. Now it breaks my heart each time I see a labourer with all his belongings walking, marching back to his village… for farmers, we’ve got the direct benefit transfers… these labourers before the pandemic were largely not rostered, you didn’t have their bank account details handily available to be able to make income transfers happen. What, sir, are your plans now to ensure that the labourers get some kind of support?

Sanjeev: Well, we do have some sort of direct transfer systems and of course back in the villages, there are already MNREGA-type…

Rahul: No, I’m talking about people working in the urban pockets in cities like Delhi, Mumbai, Bengaluru, and now having to walk back because they don’t get any income support… not the farmers who are in the villages, but the labourers who are working in our city.

Sanjeev: No so, once they are back their village system, of course, there are systems like MNREGA etc. Now that doesn’t solve the wider problem… the wider problem is that we have a slowdown and in fact one of the problems that you see with this migration is that in urban areas… when you know growth comes back they are going to actually face.. skilled and unskilled labour. So this is something that… we will have to pay attention to.

But ultimately remember, the most important thing is in the medium run, once we have passed the initial phase of opening up, is to revive growth and demand… go out there and also rebuild our economy for the new world we are emerging into. Remember, we are not only just going to reflate the pre-Covid world. We will be in a somewhat different environment in the post-Covid world. There will be all kinds of changes. Around the world, not just in India. Consumer behaviour may have fundamentally shifted, geopolitics may have shifted, supply chains may be fundamentally changed… shifting and this new word will have its own problems and its own opportunities.

Rahul: So we’ll build with how India can capitalise on the new emerging post-pandemic world, but I have one more question on labour… now we’re seeing trains being arranged to take labourers back to their villages, which is good because they’ve been stuck unsavorably so in urban pockets and on the other side you’re telling industry that you can start especially in the non-hotspot areas you can start construction activity, other industrial activities and people are wondering if you’re sending all the workers back and you’re telling us to restart work, how are those two things supposed to go hand in hand?

Sanjeev: So, obviously, nobody is forcing anybody to go back home. This depends at the local level. Even industry is coming back on stream, presumably, they will talk to their labour and they will be some sort of a tradeoff that will be made. Nobody is forcing labour to go wholesale, but clearly there is a need to allow this movement to happen. Because there are people who are stuck for a variety of reasons… there are tourists who are stuck, there are students who are stuck, there are temporary workers who had moved or… so this movement has to be allowed and we are trying to do this as organized as we can and so that we don’t end up, you know, having spreading the virus into areas where didn’t it had nothing…

Rahul: Okay let’s talk for a moment about whether we can turn this crisis into an opportunity. The prime minister held a big meeting yesterday, said that companies and the country should brace for a scenario where manufacturing wants to move out of China, come into other parts of the world. What plans are you making so that India can capitalize on this opportunity?

Sanjeev: So clearly a world that is going through a reset is something that we can take advantage of. I think there are many things that we can say about this. One, of course that these supply chains are now going to recalibrate very significantly. Some countries have gone out and actually announced packages for doing this.

Now that doesn’t mean that this will recalibrate to exactly how it was back to what it was in the pre-Covid days, in the sense that there will be changes, people may have certain views about repatriating certain key functions. There may be ideas about how to think about risk for example. Nevertheless, I think there is a huge opportunity here that we cannot…

Rahul: No, but that opportunity, sir, has always been there. Between April 2018 and August 2019, there were 56 companies that relocated out of China, removed their production out of China, out of which only three came to India. Two went to Indonesia, 26 went to Vietnam, 11 went to Taiwan, eight to Thailand. That opportunity has been around for a long time… we’ve never missed an opportunity so far to let go of that opportunity. What makes you confident that this time things will be different?

Sajeev: The current situation is clearly at a different scale where this is a re-distribution of global supply chains, this is clearly going to happen in a totally different scale from what it has happened. And yes, you’re absolutely right, this is an opportunity that we have to make it happen. And of course, the central government will play a role… very important role…

Rahul: But, can I get more specific, how do you intend to make it happen? Because we’ve had the will but we haven’t seen it translate into action.

Sanjeev: So many of the state governments, and I think we already have reports for example with the Uttar Pradesh state government has already announced an effort in this direction. We have, last year, radically lowered corporate tax rates… towards this similar end, we will simplify other taxes if necessary, other rules and regulations if necessary… no doubt that this is an opportunity and in many ways it’s for us to make it work. Let me assure you that we take this whole matter seriously and you yourself said that the prime minister is taking high level meetings precisely on this topic so obviously we do take it seriously.

Rahul: I want to show you now how Varun Khaitan, the director and found of Urban Clap, said about e-commerce and keeping startups alive given the fact that funding is now tough to come by and their business models have been badly disrupted…

Mr Sanyal, the government seems in a bind, In the first instance you announced that even non-essentials could be home delivered by e-commerce company which is an imminently sensible idea because it’s relatively… far safer than going to a market, then you came under pressure from the confederation of traders you backtracked double quick and now you’ve said neither will e-commerce work and you’re allowing some of those shops to re-open. What are your ideas about trying to push e-commerce given what we’re dealing with right now?

Sanjeev: I think e-commerce is an important part of the overall ecosystem, but I think it would be wrong to think of it as being the only thing that survives through this. We cannot, we are not, building a world for remaining in eternal lockdown. In fact even during a lockdown, a very important part of sustaining our social structures through this has been our kirana shops which are not ecommerce. So it is not as if the commerce is the be-all and end-al, so I wouldn’t react to a particular industry viewpoint on this. We have to take a wider view and you know in the ecosystem that emerges, e=commerce will certainly play a role, I think it’s unfair to say that somehow we should exclusively use e-commerce as the way forward… that’s totally not… I think the correct way to think about it, we will take a much wider view and allow for things to evolve in their own way.

Rahul: Finally, what’s the thinking within the comment about the quantum of loss to the economy as a result of this lockdown and what are your current growth prospects because the IMF said we’d go about 1.9 per cent , the likes of Arvind Subramanian said that’s hugely overestimated… what’s your sense of the total loss to the economy and the growth rate that you expect for this fiscal?

Sanjeev: Obviously it’s an evolving situation and it’s very difficult… now we do do not know how long the tail of this unwind is… we don’t know how things are evolving in the rest of the world and our export markets… there is of course a possibility of a second wave in winter… there are many many moving parts here, so I’m not spending my time trying to estimate exactly how much this loss is and I’m quite sure both the IMF and all these other gentlemen will be revising their estimates through this. For my purposes, all that is necessary know is that this is a very significant shock which we take seriously and let me assure viewers that we will do what it needs to get this economy going again.

Rahul: Sanjeev Sanyal, I want to thank you for taking out time and sharing with us your thinking on how the government viewing the current stimulus. Everyone’s asking for more help… what can follow, you’re saying it can’t be one big bang package but many small doses and why the Indian approach is different from what we’ve seen elsewhere. At least you’ve put out your thinking now, we leave it to viewers to decide what they make of the current approach and debate that.

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