Full Text | India’s Economy Is Out of the Woods. Bharat’s Is Not: Pronab Sen

In an interview with Karan Thapar, the country's former chief statistician said it is commendable that the economy is above pre-pandemic levels but identified problems with private consumption, MSMEs and employment.

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In an interview with Karan Thapar for The Wire, India’s former chief statistician Pronab Sen said that 8.4% growth in the gross domestic product (GDP) is commendable and that it is “a relief” that the economy has crept back above pre-pandemic levels. He pointed out the serious problems with private consumption, MSMEs and employment, and that there are no easy or effective ways of tackling these problems. He adds, “The economy needs God’s help”.

The video interview was published on The Wire’s YouTube channel on December 2, 2021. The following is a transcript of the interview, edited slightly for style and clarity.


The recently released second-quarter results of the GDP and the economy have been widely interpreted as a sign that the economy has decisively turned a corner. But is that the full and complete picture or if you dig a little deeper, might a significantly different impression emerge? That’s the key issue I should discuss today with the country director of the International Growth Centre, India’s former chief statistician and one of the country’s foremost economists, Pronab Sen.

Professor Sen, let me start with what I call the good news aspects of the second-quarter results before I come to the points of concern.

To begin with, in the second quarter, the GDP has grown by 8.4% which is appreciably more than the RBI estimate of 7.9%. I also noticed that in absolute figures, Rs 35.73 lakh crore is just a fraction more than the pre-pandemic levels of two years ago. How much comfort can the government take from this?

Is it a question of the government takes comfort or we take comfort? These are encouraging figures and we really shouldn’t underplay the importance of at least having gotten back to the pre-Covid level, even if it is by a fraction – because things were looking so bleak during the second wave that this is really quite remarkable.

If you recall last year, you had the lockdown effect and then you had the first wave effect, which followed the lockdown. And it took us a while to start coming back to anything resembling normality. We seem to have come back a lot quicker because the second wave was infinitely worse than the first.

So this is a creditable achievement for the economy?

Yes, indeed.

When you look at the different sectors that make up GDP, one that strikes you first is agriculture. It has grown by 4.5% for a second consecutive year, which means that compared to pre-pandemic levels, it’s 7.6% up. Would I be right to say that agriculture has played a critical role in boosting GDP growth?

Agriculture has played an incredibly important role and most so during the lockdown because it was the only sector allowed to do anything. So it’s played an extremely important role. Something else that you should note, Karan, because it is a plus and a minus, is that this footprint that we are talking about is right in the middle of the farmers’ agitation. There are thousands of farmers who have left their fields and come to hang around Delhi. Nevertheless, agriculture has grown. So that is a good sign, in the sense that agriculture is resilient. It’s a bad sign because what it’s telling you is that there are too many people in agriculture and even if a large chunk of them move out to do something else, it makes no appreciable difference to what agriculture does.

This second point is an important one for the government and for statisticians and economists to note because it underlines the need to bring people out of agriculture.

The bad news, Karan, even worse is that that need has been known for a while. It’s been known ever since the Green Revolution.

And ignored?

No. If you look at the last 40 years’ data on unemployment, sequential employment in agriculture had been falling. If you look at the latest employment data, employment in agriculture has actually gone up, for the first time in 40 years.

But that is because migrant workers are going back.

Not just migrant workers, in fact, there is a very interesting number that came out just the other day, which is that there is something called urban agriculture, which is really the periphery of urban areas. Urban agriculture has seen an appreciable growth, which means people in urban areas have lost their jobs and since they are local residents, they have again gone back to the family farm.

This is distress employment and this is where the problem really arises. 

I’ll come to employment in a moment’s time, but let me carry on with what I call the good news points of the GDP result.

A second is clearly to do with private investment. It’s not only 11% more than last year but it’s almost 1.5% more than pre-pandemic levels and the Indian Express points out that private investment in the second quarter of this year is higher than in any other quarter two of the previous five years. Is this a sign that industrialists and businessmen are now pretty confident about the future as they see it?

Yes, perhaps the more correct way of expressing it, Karan, would be to say that some Indian businessmen and corporates are a lot more confident.

That ‘some’ is an important word.

Yes, the ‘some and the ‘lot’. 

So it’s a fraction or a minority that are very confident, but they’re very confident in a very big way?


When you look at the quarter two results of this year side by side with quarter two of two years ago, you notice that this year, it’s five sectors that have actually pushed growth. But two of the biggest sectors – construction, and trade, hotels, transport and broadcast services – which I believe together constitute 23% of GDP, these two big sectors are still below pre-pandemic levels. So although we have growth, it’s by no means broad-based growth?

No, so essentially the sectors which are person-intensive – like both of these sectors (trade tourism and restaurants, and construction) are, are still lagging behind. And there are various reasons for it, I suppose. 

But they also constitute 23% of the GDP.

They do, but much of that also has to do with restrictions that have been placed. If you think about restaurants, for instance, in most places there is a restriction that you cannot have more than 50% of your registered capacity.

Which is a curb on the work they can do. But the point I’m making is that when we are pleased with the fact that the economy’s just gone above pre-pandemic levels, you have to bear in mind that two of the major sectors of the economy, constituting 23%, are still significantly below pre-pandemic levels. Which is why I say, it is growth but it’s not broad-based growth.

Yeah, that’s correct. Now, the thing of course is if there are legal restrictions to growth, it does not inherently reflect on the economy per se.

Absolutely, it’s to do with the government putting restrictions. But either way, we haven’t got broad-based growth, whether it’s to do with the economy or whether it’s to do with the government restrictions. 

Let’s then at this moment, come to what I call points of concern and I suppose the first is private consumption which constitutes between 55-56% of GDP. It’s still 3.5% below pre-pandemic levels. And in a sense, this is corroborated by a series of consumer sentiment surveys which show that consumer sentiment is somewhere between 25% and 30% below pre-pandemic levels. How much of a concern is this gap in private consumption?

It is a major concern. There are two factors at play out here. One factor is we do know that last year households experienced a loss of Rs 12 lakh crores. That’s bound to affect consumption and it would play out during the course of this year. The second factor is that if employment-intensive sectors, like you, said construction and trade hotels and restaurants, if they are not growing then employment isn’t growing and therefore, household incomes aren’t growing. Which is a double whammy. So it is a concern, and much will depend on how this returns to normality.

I’ll point out, although I’ll discuss it in greater detail later, this is a concern the government hasn’t noted and the chief economic advisor in his statement actually almost ignored this.

Let’s come to the second point of concern. This time I am talking about government expenditure, which as you know constitutes 11% of GDP. But at a time like this, most people would say critical, and yet to my astonishment, I discover that government expenditure in quarter two was almost 17% below what it was in pre-pandemic times. How do you make sense of that? 

Well, there is a correction to be made, Karan. What is down is government consumption expenditure. What is not getting reflected there is public investments. From all indications, public investments are up. But there is a second point which people don’t seem to have noticed.

Before we go to that point, can you explain the distinction between government consumption being down but public investment being up?

Government consumption is when the government is actually buying goods and services for its current use. Public investment is in creating infrastructure – roads, railways, ports, airports and so on and so forth – it’s creating the infrastructure for the future.

How much of a problem is that government consumption is down so public investment is up?

Well, it’s a distributional thing. Government consumption means this particular, sort of sectors, their demand has fallen because the government consumption is down. But other sectors, particularly the construction sector, will be benefiting hugely from the additional investment the government has made.

So the fact that government expenditure is 17% below pre-pandemic levels is not such a major problem in your eyes since public investment is actually up, it’s government consumption that’s down. So to point this out as a point of concern is perhaps mistaken?

Well, there’s a further complication, Karan, which I think that you should know and most people haven’t noticed this, by the way. In the national accounts, they report two figures. One figure is the GDP which is the gross domestic product and the other is the GVA which is gross value added. GVA is the value of what is being produced in the country. GDP is a more inclusive measure. The difference between these two numbers is what’s called net indirect taxes, which is total indirect taxes minus total subsidies.

The interesting thing that has happened in this particular GDP footprint, and this is unlike what was happening earlier to this, is that the net indirect taxes have been negative. The reason this is interesting is that precisely over this period, what we had seen was a sharp increase in GST collections, which is a part of the tax component. This implies that subsidies have gone up more than tax collections have. Normally, one would have expected the government to have tom-tommed on this, really gone to town with it… because we are proud of the subsidy we’re putting in and helping consumption along.

So what does the government’s silence mean?

I don’t know. It could mean that much of the subsidy is going from the states because the accounts don’t distinguish between the Centre and the state. So it could be the states who are putting in the subsidies and therefore the Centre can’t claim credit, or it’s inexplicable.

So this is a point which is mystifying because we can’t understand it, rather than a point of concern to do with GDP.

So it’s a good thing they’ve increased subsidies, and the Centre hasn’t been taking credit which is what is mystifying.

Which suggests that probably the states have done it which is why the Centre’s quiet about it. It doesn’t want to give credit to the state, many state governments are Opposition governments as far as the Centre is concerned. It’s a very interesting point you point out but I’ll just mark for the audience it’s a mystifying point rather, but not a point of concern. 

It’s actually a positive point. 

Members of a family excluded from the PDS foodgrain entitlement show their Aadhaar cards. Photo: Rakhi Ghosh

Let’s then come to what has happened to MSMEs which are 30% of GDP and perhaps 80%-85% of employment. Quarter two results don’t immediately tell you but when you dig deeper you can begin to understand. Now, a lot of MSMEs are involved in the tourist, communication services, hotels and trade sector. But this sector is almost 10% below the pre-pandemic levels. So if the sector as a whole is below pre-pandemic levels, doesn’t that suggest that MSMEs are suffering, they are struggling?

MSMEs have been struggling now for a while, since the lockdown. The blow really fell on the MSME sharply during the lockdown and it has just continued since then. So to know what is happening to MSMEs, just looking at the GDP figures isn’t enough. You need to look for corroborative evidence as to what’s going on. The clearest sign is what’s happening to bank lending. Because MSMEs, unlike corporates, do not have access to the capital markets. So practically the entire financing, whether for working capital or for expansion, comes from the banking sector. 

The banking sector data suggests that there has been very little flow into MSMEs. The latest numbers that the RBI put out for last month suggest an uptick. But that is something we need to take with a pinch of salt because, it’s an 8.5% growth in lending, is because your wholesale price index which represents the cost of production in the MSME has gone up by 12%. So the growth in credit doesn’t even meet the increase in cost.

Absolutely. So what you are saying, and this is something that the quarter two results upfront don’t tell you, it’s only when you dig deeper and when you also look at bank lending, which is not covered by quarter two results that you discover, the position of MSMEs that have been struggling is that they continue to struggle. And since this is 30% of GDP, it’s bad news for the country.


But this is not immediately covered by the Q2 results. You have to dig deeper to discover this. 

Well, you know the thing is it’ll eventually appear in the results but not in the same quarter. It will come with a lag.

So when people look at the Q2 results, as they did for the last two days, and say this is unalloyed good news and the economy is down the corner, one of the things we should say is hang on – look at MSMEs, 30% of GDP, 80% of employment, they are struggling and their position hasn’t improved.

Yes, from all indications they haven’t improved and may well be getting worse.

Let’s look at the Q2 figures in terms of employment and jobs, which is what matters to laypeople. Once again, you have to tease the results to understand what’s happening because the results don’t tell you upfront. But a lot of jobs are created by two sectors in particular – construction and trade, hotels, tourism and other allied services. But again, those are under pre-pandemic levels, and in the case of trading hotels, very significantly under pre-pandemic levels. So does that mean that there is a squeeze on employment opportunities and possibly pressure on income levels?

I think we started out with that practically, saying that that pressure is there and that was showing up in the consumption numbers which haven’t really gotten back.

And showing up in the fact that agriculture employment is going up because people are having to give up jobs in cities and go back to their land.

That’s exactly correct. So just the headline unemployment numbers don’t tell you the story. Because what’s happened is that people who are in the lower-income brackets, they cannot afford to remain idle. So they’ll take up whatever job and be shown as employed. 

But it’s a worse job with less money.

And therefore, less multiplier effects on economic growth.

So either they have taken up less remunerative jobs with less multiplier effect on demand and growth, or they’ve lost their jobs and they’ve gone back to whatever family land they have. And added, in a sense, to rural employment. Or if you look at it differently, to rural underemployment. Again, this is a side of the truth of the economy, the quarter two results don’t immediately reflect, you have to dig deeper to find out. On their own, it doesn’t tell you anything about employment.

No, about employment it doesn’t. They are not even designed to. You have to draw inferences. But the point is you can’t say that what it does do is to give you a partial story.

Particularly when you look at trade, hotels and things?

The whole GDP numbers. What it is telling you is corporate India is doing well factually.

And MSMEs continue to suffer. And the unorganised sector, therefore, continues to suffer. And 80% of the people employed in the unorganised sector are either losing jobs or doing jobs that are less remunerative.

And that’s showing up…as I said, you have to look at corroborative numbers. Just focusing on the GDP numbers won’t give it to you. So look at what’s happening to wages. Wages are down, not up. Despite the fact that the consumer price inflation has been upwards of 5% for a long time now. 

A woman working in an MSME unit. Representative image. Photo: Reuters/Francis Mascarenhas/File

And despite the fact that corporates seem to be gung-ho.

By the way, corporate salaries are going up.

In a sense, this also indicates a polarity of what’s happening to people in the Indian economy. The 80% in the unorganised sector are losing jobs, they are worse-off, their salaries are down and therefore, their impact on demand will be minimal. But the minority in the corporate sector is doing extremely well. And within that, you’re saying a further minority is actually pretty gung-ho. So India’s becoming two countries.

Well, in a sense, it always has been, but it has become more so. We were converging up to a point but that convergence is now diverging.

Let’s at this point come to something that the Q2 results don’t cover at all. To be honest they’re not intended to but that’s the question of rural employment or unemployment. Now we know from the fact that the government has announced that they need to raise Rs 50,000 crore more for [Mahatma Gandhi National Rural Employment Guarantee Act] NREGA. Doesn’t that suggest that NREGA demand this year is pretty close to NREGA demand last year, which is the worst of the pandemic, and therefore rural unemployment or underemployment remains a serious concern?

Yes, it does. I don’t think there is any question about it. The NREGA is not a bad bellwether for what is happening to rural employment and even more so, rural incomes. It’s really rural incomes what you are talking about. And particularly for landless labour. So it’s a very important indicator. And the NREGA figures may actually be understating the problem, and the reason for that is that NREGA figures reflect only those who have registered as asking for employment. And we know from anecdotal evidence that there are lots of places where once the state government machinery which is supposed to deliver NREGA, either runs out of money or runs out of support.

And we know that already NREGA payments are several weeks or months behind time.

That’s right. So they just stopped registering people. So that the unregistered work-seekers are simply not being reported.

So there’s a sizable portion of people in rural India who need jobs, are going to NREGA, but are not being registered because NREGA doesn’t have the funds. So they’re not covered at all. And just to make a little point about NREGA itself, if I’ve got my facts right in my memory, the amount allocated in the budget was roughly Rs 70,000 crore. If [finance minister Nirmala Sitharaman] needs Rs 50,000 crore more, it will take it to a total of Rs 1.2 lakh crore. And that’s even more than last year’s figure.

Well, you know of the Rs 70,000 crore that was allocated this year, nearly Rs 40,000 crore went off paying last year’s arrears.

Which is why she needs Rs 50,000 more. And perhaps the same thing will happen next year.

Quite likely.

NREGA is a great indication, and I am trying to bring this to a conclusion. It’s a great indication of rural demand, rural underemployment or unemployment. But, NREGA doesn’t meet it fully because the figure, when allocated, is sizably to cover the year before’s demand and it falls short of the present year.

Yes, and just to add one more point – in a good agricultural year, which is supposing God hadn’t smiled on us and given us monsoon this time around, it would have been infinitely worse.

So in other words, the rural underemployment-unemployment situation is somewhat ameliorated by God’s mercy and not by the government’s good work.

Yes, unfortunately so.

Let’s at this point, because we have looked at the details, pull out and try and see if we can find a big picture. To begin with, do you accept this is a V-shaped recovery as the government insists or would the alphabet K be a better description?

Well, see the alphabet K is an explicit recognition of the duality that we were talking about. And what it is saying is that there is certainly a V-shaped recovery in a part of the economy.

But it’s a small part?

Well, it depends. In terms of its share of GDP, it’s not that small.


No, the corporate sector is much larger than that. The corporate sector plus government, it’s larger than that. It’s nearly 55%. The rest of the economy is going down. So in terms of GDP, it looks like a V. But if you take it in terms of other parameters of development and well-being, there is a downside.

This is very very important. In terms of GDP, because the corporate sector and the government sector are 55%, it looks like a V. If more than 50% of GDP is doing well, it looks like a V. But if you look in terms of well-being; if you look in terms of impact on people; if you look in terms of what matters – are the Indian people better off or are they without jobs and suffering, it’s a decided decay.

Yeah, on average the Indian people are still worse off.

In fact, given that 80% of Indian people are in the unorganised sector and in the MSMEs and they are struggling or worse off, for the majority of people, this is the bottom end of the K. For the corporate sector, it’s the upper end. And that in a sense, takes you back to the point I made earlier – this is two Indias.

Yes, But as I said, we have always had two Indias, for the longest time. It’s just that earlier there was a convergence happening, now it’s diverging. 

What about another point made insistently by the chief economic advisor, in interviews and again in an article he wrote for the Economic Times. He insists that by the end of the financial year, i.e. March 31, 2022, India will have grown in double digits. Do you accept that?

Compared to last year, it’s possible.

Is that not a base effect or is that the economy?

That’s the base effect. Because we shrank by 7.5% last year, double-digit growth this year isn’t anything to write home about. You would be only about 2.5 percentage points higher than 2019-20. 

So you’re saying two very important things. One, if double-digit growth happens – I am putting in the word ‘if’ on purpose – it’s almost predominantly because of the base effect of last year – we shrank so much, we have to grow in comparison. Secondly, if we do achieve 10%, it’s only 2% more than what we were two years ago. And as you said, double-digit growth is nothing to write home about.

For this year. Double-digit growth is great, under normal circumstances. This year, in fact, if we get double-digit growth, we should heave a sigh of relief. 

And if we do get it, it’s not something to tom tom in such a big way. 

Not really.

As you said, nothing to write home about. Let’s look down the road. If private consumption doesn’t pick up substantially and if government expenditure remains as it is, will that have an adverse impact on private investment? And secondly, will that, in turn, affect growth?

Well, yeah the dynamics of this are complex. Till consumption demand picks up, investments will remain subdued. Now you may well ask – but investments have done well as per the GDP numbers. But as I said, that’s investment of a particular variety by a particular segment.

And a minority, as you said.

And a minority. And it’s a segment which also happens to be very capital intensive. So it’s a type of capacity creation which is not going to be generating jobs for you.

And they won’t be creating demand.

Now, this is where the whole problem is. Yes, certain demand will be created. You and I will have more earnings. So it’s an upper 20% that you’re talking about but the bottom 80% will not. And what’s going to happen is, and this we saw earlier after demonetisation, that you and I start reaching our consumption saturation points at some time. It took a year the last time around. Maybe it will take a year and a half this time around. But once you reach the saturation point, what happens is that our income then spills over into, essentially, imports. We travel more, we go out, we spend money on things we can’t get here because we have saturated ourselves with what is available.

And that doesn’t help the Indian economy.

That doesn’t help the Indian economy one bit. To an extent, that may have already started because if you look at the import figures, they are going through the roof. So, you know we are crowing about exports but the fact of the matter is your trade deficit is increasing day by day.

So what you’re saying is a very important point. Private investment may look good on paper but it’s only a particular type of investment, only done by a particular minority of corporates. It’s capital intensive, it doesn’t create too many jobs. That’s not going to impact on demand in a sizable way. It may impact on yours and mine, but on the 80% of the population who are involved in the unorganised sector, their demand will remain flat. And therefore, there will come a time when private investment would actually stop growing because the demand that should sustain it will be missing.

Yes, so basically the process by which people move up the economic ladder, if that gets disrupted, at some point demand plateaus and then may even decline.

So what you’re saying is that if we don’t find ways of boosting private consumption, whatever uptick we’ve seen in private investment will soon start to flatten out. Give it a year and a half but it will flatten out. That means the key for the government is to boost private consumption.

At the bottom of the pyramid.

The second concern is inflation. I know that the CPI is also 4.5 but as you pointed as WPI is at a very wiring 12.5 and I presume it won’t be long before CPI starts to rise as well. When that happens, won’t that again suppress private consumption because things are more expensive and people don’t buy and in turn it might encourage the RBI to kick up interest rates and that in turn will suppress growth?

The RBI, given it’s mandate, in a situation of the type you are describing will have to increase interest rates.

It’s a matter of time?

It’s a matter of time and judgement.

And that will suppress growth?

Yes, it will.

And if inflation doesn’t come down quickly, it would also suppress private consumption. So that’s another reason why, as you look down the road, there are question marks.

But the big question mark there, Karan, which is a question again nobody seems to be asking is that why is that inflation. You know, if you think of the discourse that’s happening, is that capacity utilisation in India is still low. It’s about 68%-70%. If that were the case, why is there inflation? Now, unless and until you have a compelling reason for it, you can’t tackle it, number one. And let me tell you that the problem may actually be that pricing power has shifted to a smaller number of players. And they are actually determining prices. So the level of competition in India may have declined and the pricing power has shifted from consumers to a smaller group of producers. 

Is that a reflection of the fact that a majority of the consumers actually are not spending because they don’t have the money?

No. It’s a reflection of the fact that the MSME sector is in the doldrums and they are not able to provide the competition that they used to. 

So here we have an interesting problem. We know that continuing and rising inflation will affect growth and it will affect private consumption. But we don’t know what to do about it because we aren’t absolutely sure why we have inflation in the first place. 

That’s right. In a situation of low capacity utilisation.

And on top of that, there is perhaps, I put it in quotations, the “imminent problem” that America will still have to start raising its interest rates because it has almost unprecedented inflation.

Yes, over 6%.

And when that happens, that will again have an impact on the Indian economy because the money that is here will be dragged out.


So we have two worrying concerns as we look down the road. One, private consumption which needs to be boosted but the government is not doing too much about it – it’s almost unconcerned. And secondly, this inflation, which we don’t understand and which could be exacerbated by what happens in America. 

Yes. And how that game is going to play out isn’t very clear but I think US President Joe Biden is getting very concerned about inflation.

He talks about it increasingly now.

And he should. So I suspect what’s going to be happening is that they will withdraw the monetary impulse. He’s already got this large expenditure package out, so he’s going to shift from a monetary expansion to a more fiscal expansion to support the economy. So what will then happen is the level of liquidity in the global economy will go down.

File photo of US President Joe Biden. Photo: Reuters.

A lot of money will go out of India.

Which may in itself not be a bad thing.

It may affect inflation?

That’s right.

But it also means that a lot of funds that are available because they’re leaving will force the RBI to push up interest rates a bit more.

It may not, because the RBI may not need to. Because interest rates would go up by themselves.

Ahh, interest rates will go up by themselves, the RBI may not have to. So in other words, banks themselves will put it up.

That’s right.

So you’ll have a double problem in India.

Well, that depends whether you call it a double problem or not. The RBI is playing around with the interest rate, essentially to try and signal to the bank what they should do. They’re doing it anyway.

Finally, there is the threat of omicron hanging in the air. A spectre that we don’t quite know what to do about. But there is the fear that if it tilts in the wrong direction, it would clearly impact the internal economy. But I put it to you that it will also impact the demand for exports. Because if omicron affects western economies, demand for our exports will come down and that will affect the fact that exports are 23% of GDP and in the last two years, they’ve grown by 17%. If the exports decline, again the momentum for growth in the long term will also come down.

Yes, but you know the issue there is again an issue of sequencing. Where would the omicron effect come first? If it comes in the countries to whom we export, then what you’re saying is absolutely right. But if it happens to come to countries who are our competitors, our exports may actually gain. Because there will be a supply-side effect that will be playing outside.

So as far as textiles are concerned, we have to pray it happens in Vietnam and Bangladesh.

And not to us.

But if it happens in Bangladesh, it’s going to happen to us.

That’s a separate issue. We assume that it is going to spread but the sequence…

That’s a very interesting point you make. But let me put it like this: at the moment western economies are very paranoid about the omicron effect. And I imagine that as they start declaring lockdowns or restrictions and take other measures, their economic activity will slide down. And if that happens, their demand will slide down and that will affect our exports.

No, not necessarily. Again the experience from the past has been that when shutdowns have happened, local production has stopped.

And so exports grow. So in a sense, we have to hope they shut down in the West?

Yes, in your important countries.

Okay. So the omicron effect is a spectre but we are not sure quite what its impact will be on our exports?

Not yet.

If it happens to us, however, there will be an impact on the internal economy.

And your exports. Because you may affect the production for all you know.

So we have to hope and pray that omicron happens to the West. 

Well, let’s not hope it happens to anybody.

…but it happens to our neighbours and not to us.

We’re coming right to the end of the interview. Let me put to you what I think is the conclusion of the Business Standard lead article yesterday where they were commenting on Tuesday’s results: “It is clear that India is far from out of the woods yet as far as the pandemic macroeconomic shock is concerned.” Everything you’ve said seems to agree with this but I want to ask you, do you agree?

No. I would say India is out of the woods. Bharat is not.

Okay, we go back to the two country analogy.

I’m back to the two country analogy.

That is very interesting. India is a minority of the country. Bharat is the 70-80% majority. 80% of the people of India are in the woods. And as far as they’re concerned, and I’ll misquote Robert Frost that “they’re terribly dark and they’re horribly deep”. For 20%, the sun is shining.


That’s a very interesting commentary on our country.

One last thing, in these circumstances, if the prime minister were to pick up the phone and ring you this evening and say Pranob, what the hell do I do, what would you tell him?

It frankly is very difficult to say, because direct instruments to address the MSME sector really don’t exist. They’re all kind of indirect instruments. The government, I think, is aware of the problem. The finance minister has repeatedly exhorted the banks to lend to the MSMEs. The banks have simply dug in their heels and said no – and for good reason. If I were a bank I would do the same.

Yeah, we don’t want to lose money. 

We don’t want to lose money and so we’re not going to do it.

So if the banks don’t lend, how can she get money to the MSMEs?

The only side that the government can effectively address is if you again think back to what happened towards the end of the lockdown last year, which is to create special windows only for MSMEs that the banks have to provide for.

Did it work last year?

Well, up to a point it did. I think just Rs 3 lakh crore were provided. I think they’ve disbursed some Rs 2.1 lakh crore, which is still…

It is only roughly 66%.

Yeah but it’s still fairly tidy. You leave the bankers to themselves so that it becomes a part of their regular judgement call, they’re not going to do it. I wouldn’t do it.

So you have to create a special window.

And say this is only for that.

But you’re well aware that when you last created the special window, only 66% did its work. But in the circumstances, where there is nothing else you can do, 66% working is better than nothing.

What about direct money transfer?

Well, you see, the whole thing really revolves around continuity. If you are talking about businesses coming back into production, they would want to see a certain continuity in the income stream that is supporting their income stream.

In other words, it has to continue for several months.

Years. I am not going to invest unless I see that demand maintaining itself till I’ve at least broken even. 

So direct income transfers, if they’re going to work, has to do with the assurance that they will continue for years.

Yes. And it can’t be from three months to three months. That doesn’t help. 

It has to be announced upfront, this will continue…

For three years.

And this sounds very unlikely to my ears because it hasn’t happened before, it’s not going to happen again. 

So what you’re saying to me is that once we’ve got over the benefit of the base effect which will boost us, with luck, to 10% this year, thereafter, if we can’t find effective ways of boosting private consumption, which means basically boosting MSMEs, and we don’t have a good way of doing it, then we’ve got a problem on the horizon for several years thereafter.

Yes, but what can be continued Karan, I mean you’re absolutely right direct income transfers perhaps cannot… you can’t even announce them long term. But the government investment programmes can. We need to announce upfront that over the next so many years, we are going to put into investment, because that’s going to create a durable demand for the MSME sector.

Why can’t the government do that? Why can’t they announce it?

They can, provided that the Centre and the states are on the same page. It has to be a cooperative effort because the kind of investment that we’re talking about is really in the domain of the states. 

And that is another problem. So the political dissonance, and that’s a euphemism, between the Centre and the states is another stumbling block in announcing the one measure they can announce – upfront announcement and public investment.

And that would be effective.

So we end up, right at the end, with the sort of a conclusion, we don’t have good economic instruments to tackle the problem of MSMEs and private consumption. The instruments we have are not just not the greatest but they are also hobbled by politics – politics between the Centre and the states.

Yes, I mean all instruments are hobbled by politics.

Well, what I can say at the end of this interview and I’ll name all the Gods I can think of Jesus, Ram, Allah, Yahweh Moses, please help us, we need the help.


You really mean it. I meant it jocularly but you are agreeing. We need God’s help!

We need help. So far he has helped out. I mean other than giving us COVID-19, of course.

But we need better help from God. Thank you very much indeed, professor Sen. Take care, stay safe and keep away from the Greek alphabets.

We forced it, by the way.

Thank you very much.