Full Text: Pronab Sen on Why Q2 Growth Numbers Aren't Cause for Celebration

In an interview with Karan Thapar, economist Pronab Sen talks about the state of the Indian economy going forward as the global economy stares at a recession.

In the wake of recently published second quarter (July-September 2022) results for the economy, Karan Thapar interviewed economist Pronab Sen to understand the state of the Indian economy, concerns raised over official GDP figures and projections, the performance of individual sectors such as agriculture, manufacturing, MSMEs, among others.

Sen makes it clear that the latest growth data hide more than what they actually reveal. According to the data released by the ministry of statistics and programme implementation, India’s GDP grew by 6.3% in Q2 on a year-on-year basis. In other words, it was 6.3% more than the GDP in the same months in 2021.

Sen warns government to take necessary steps to boost MSME sector reeling under pandemic losses. Failing to boost the sector could prove adverse for the Indian economy, affecting GDP growth for 2023-24 to be worryingly low at 4.7% to 4.8%, he adds.

The video interview was published on December 3 on The Wire. Reproduced below is the full transcript of the interview. The text has been slightly edited for clarity and syntax.


Hello and welcome to a special interview for The Wire. Quarter-II results for the economy are out and the key question is ‘how should they be interpreted?’ The government has gone on record to say that these are good results, but is that assessment justified?

Joining me now to answer precisely those questions is the country director of the International Growth Centre, India’s former chief statistician and one of the country’s top economists Pronab Sen.

Professor Sen, Q2 results show that the Gross Domestic Product (GDP) has grown by 6.3%, which is 7.6% more than the comparable period of 2019-2020, the last pre-pandemic year. Were you expecting this or are you somewhat surprised by the outcome?

It’s a little on the higher side. I’d expected around 6% but you know that would be splitting hairs really, 6.36%.

Now, I noticed that GDP has grown by 6.3%, but Gross Value Added (GVA) has only grown by 5.6%, and therefore there’s a fairly substantial difference between the two. What’s your explanation for this, and secondly, what does it tell us about the state of the economy?

Well, Karan, the GVA is the true measure of what is happening to the production, and 5.6% is fairly low. I think the expectations were higher than that. That’s something we can come back to. But the difference between the two is the total amount of indirect taxes collected by the government minus the subsidies that the government pays out.

Now we do know that the Good and Services Tax (GST) collections have gone up very strongly during this period, but it’s not large enough to explain the discrepancy. So, it suggests that government subsidies have gone down. Now, we have no information on that, and these are there in the government records somewhere. We don’t know whether it’s Central subsidies or state subsidies, but that is something we need to keep our eye on because in a weak economy, if you are actually lowering subsidies, then you may be doing damage to parts of the economy which need that help.

But the interesting thing is that if GVA is the true measure of what the economy is producing, and it’s only 5.6% and the difference between GVA and GDP is because of indirect taxes, then actually GDP of 6.3% doesn’t really reflect the production of the economy. GVA is a better one. We’ve grown at 6.3% because of taxes but actually by producing at 5.6%.

This is correct, so that’s what’s happening on the production side. The GDP is a measure of income, and the difference between the value of the production and the total income generated is what the government is expropriating. 

Now, this is a very important thing because I think a lot of laymen who don’t understand the difference between GVA and GDP will now realise that actually in terms of what the economy is producing. GVA is the more accurate figure and it’s only 5.6%. GDP is higher but that’s because of taxes.

Or worse, reduced subsidies. 

Now reduced subsidies would, of course, affect people who are dependent upon them.

This is right and subsidies are fairly targeted. So the category of people who have lost out would be adversely affected. 

And the people who are targeted and have lost out would be the poorest, who can least afford not to be subsidised.

I would imagine so.

Let me come to something else. 6.3% GDP growth in Q2 is the upper end of the Reserve Bank of India (RBI) forecast for Q2. Does this suggest to you that in GDP terms, the economy is heading towards 7% growth at the end of the year, assuming we make 4.6% in the second half? Or, are you concerned by the fact that on the very same day that Q2 results were released, core sector growth for October came out and it was only 0.1% – which I believe is the lowest for 20 months? And the second worrying factor is that the international global situation is not going to help India’s growth story if anything it will retard our exports? So, do you think that a 7% figure is attainable?

With 6.3% in the second quarter, yes it is. Had it been six or sub 6 then it would have been relatively difficult, because then you would need closer to 5% in the second half. But you’re right I mean there are very strong headwinds. And the global situation is not going to help at all, which is fairly clear. It’s not just export.

Remember what happens is when the rest of the world starts going into recession, the producers there look for alternative markets. And India looks like a very attractive alternative market, and so you’re going to have all sorts of countries targeting India as an export destination. So there’s going to be additional competition coming from imports, which could affect our production.

Now there’s a very interesting thing here if you believe that 7% looks attainable, because of the 6.3% figure in Q2, then you’re also suggesting that the claim was made by the chief economic advisor. I think he made it the same day as the results came out that the economy will grow between 6.8% and 7% is more or less correct?

It appears to be yes unless something very dramatic happens in the last quarter. 

Let’s at this point look at individual sectors of the economy and the point you made a moment ago about imports and imports increasing. I’ll bring it up in a moment’s time, but let’s start with sectors of the economy that have done well.

And I suppose the first one that comes to mind is agriculture. It has grown by 4.6% and the Indian Express says this is the highest in 10 quarters. But many people are surprised because as recently as September 21, the ministry of agriculture said that the sowing of Kharif seeds and crops, particularly food, grains, oil, and jute, was fairly substantially below last year. On top of that, we’ve had deficient rains in June and excess rains in September. So how do you view this 4.6% figure?

This is where the discrepancy, my expectations about 6% and the 6.3% that we’ve got, a large chunk of it really comes from this. I had expected agriculture to be sub-three.

Representational image. Photo: Rajarshi MITRA/CC BY 2.0

So it has grown by 1.6% above your expectations.

Above my expectations, and I was going precisely by the sort of information that you just talked about.

Could there be an inaccuracy in this 4.6%?

Well, you see this data is collected by the state governments and simply compiled. The real question mark out here is crop agriculture, which is reasonably well calculated – which are grey areas and are called allied activities, like fisheries animal husbandry and so on. 


Dairy, yeah and animal husbandry. Those figures are a little, a little less reliable.

So there is room here for this to be revised downwards.

It could be but that’s not going to happen in a while.

And, therefore, there is a question mark, both about the agricultural 4.6% and therefore there’s also a question mark about that 6.3% because that’s very dependent on the 4.6.

It’s very dependent on the 4.6%, yes 

So it is possible, yes, that when we know more and we have a better idea of what’s happened to fisheries, animal husbandry, and dairy that we may be revising not just agriculture, but the total GDP figure of 6.3%.

This is right. Well not the GDP figure, what you would revise is the GVA figure.

Quite right. 

And then, of course, the GDP comes down.

Now one reason why there is concern or doubt about that 4.6 figure is, as Roshan Kishore points out in the Hindustan Times, 4.6 growth in agriculture, he says, has not boosted the earnings for rural labourers. Rural wages, he says, contracted for 10 consecutive months in September 2022. So you have a sort of seemingly anomalous situation. Agriculture seems to be growing at quite a fast rate, and yet rural incomes are contracting quite steadily. 

Yes, and the reason is, if you remember a very large number of people went back, there’s a reverse migration that took place in 2020 and 2021. I don’t think most of them have come back yet, which means that today rural India continues to be seriously labour surplus. Right so the competition for whatever agricultural work there is, is going to depress wages.

As a result of which even if agricultural production is going up, the actual income that people are earning is going down because there are more people now depending on that income.

No, it’s the wage workers. The farmers will be gaining. But the wage workers are going to be suffering. 

And, in a sense, I suppose this is reflected by a story on the front page of today’s Business Standard, which says that, in fact, rural demand for FMCG goods has actually fallen pretty sharply between October and November. It’s down I think if I recall correctly almost by 18%.


That’s again a reflection of this. 

Well, it is a reflection not just of that. Again we need to realise that if you look at rural households, agriculture accounts for less than 40% of their incomes. About 60 comes from non-agricultural activities. My suspicion is the non-agricultural activities have not been revived yet either.

So, in a sense, there’s a double whammy.

Well it’s not a double whammy for the farm families, with its landowning families, they would be getting a boost from agriculture, but the non-agricultural income would continue to be subdued. So the total increase in income is not going to be that large.

And as you said, wage labour on farms is also being paid less. So for the wage labour, there’s a double whammy. 

So for the wage labour, there’s a double whammy. 

Professor Sen, let’s then come to a third sector of the economy that’s doing well, and this time. I’m talking about private consumption. It amounts to roughly 55% to 56% of the GDP and it’s grown at 9.6%, but I noticed that India ratings have pointed out that this is not a broad-based recovery, because as they say the current consumer demand is skewed towards goods and services consumed largely by households falling in the upper-income bracket. If I’ve understood them correctly this means that consumption for the rich and the well-off has certainly increased, but consumption for the poor may not have increased, it may be static or it may even have diminished.

Yes, as we discussed the rural industrial suffering. And a large chunk of what we classify as the lower income groups in India are in rural India, and they continue to face, you know, a very weak economy. There is no question that the well-off have improved their conditions considerably, corporate India has been going great guns, very strong performances coming across, and the people who are working in corporate India are doing very well as well. So there’s no question about that.

But you know the kind of growth we are talking about, you know 9.5% growth in consumption, cannot be explained just by what’s happening at the top, because we are talking about maybe 25% to 30% of households. That can’t explain this kind of growth. So there has to be, there must be some trickle down that is going on. But how far it’s trickling down we don’t know. But if you look at the FMCG data and FMCG data is pretty sensitive to current lifestyles, very weak growth particularly in rural India, which suggests that the trickle-down hasn’t gone very far down. 

So, if you…

So I would say it’s the well-off and the middle class which seems to be doing reasonably well.

And the poor are not. 

Poor probably are not.  

So now if you look at what we’ve just discussed, in terms of consumption and the fact that this is not broad-based; the middle class and the rich are doing well the poor are not and if you add to that what we spoke a moment ago about rural India, where farmers may be doing well, but rural wager labourers are not, you get a sense in which inequality is increasing…

Inequality is increasing for sure. I mean I don’t think there is any doubt about it, and it’s been increasing for a while now. I mean this one, this is not new. It started increasing post-demonetisation when non-corporate India got badly hit Incorporated increased its market share. It began there and it’s just getting worse and worse and worse. 

And for a democratic country, where the majority are poor, not rich, the increase in inequality is a worrying concern. 

Yeah well it depends, you know I don’t think we fully understand how their behaviour works, because what it could do is give a further boost to their aspirations and hope. 

But that would be lovely because that would then lead eventually to increased production.


But it could also lead to despair which is the other end of the equation. 

Yes, that would be worse.  

And again none of this becomes immediately apparent when you look at the bold Q2 results, it’s only when you analyse and dig deeper and you explain that this inequality begins to become apparent, and then you ask yourself, is it a matter of concern or not?

That’s correct.

Now a fourth area where it seems the economy is doing quite well is in terms of private investment. It’s grown by 10.4% and in this case, the Indian Express says and I’m quoting “this is the best growth over any three-year period going back to the financial year 2014”. So in terms of specifically talking about private investment, would you say the Finance Minister and even the Chief Economic Advisor are correct when they say that private investment is picking up?

Private investment is certainly picking up right, but number one there’s a base effect. Investment last year wasn’t doing anything. Now it’s starting to pick up, so there’s a very strong base effect playing out. So growth started last year but Investments didn’t pick up. So investments are now growing with a lag. So that’s number one. The second thing is if the story that we’ve been telling up to now sort of hangs together, then the investment is happening primarily in corporate India and that is borne out by banking data. The problem there is that corporate India tends to be far more capital-intensive than the non-corporate index. 

So, it’s not creating commensurate jobs. 

It will not create commensurate jobs and it won’t even create commensurate output. Right because you are not, the amount of output you would get per unit of capital is less in corporate India. So in terms of how much production capacity is being built, it’s probably lower than if the pattern that we had seen earlier, which was a rough balance between corporate and non-corporate India, had been maintained. So you know one would have to watch this a little carefully.

So once again prima facie when you see on paper, investment has gone up by 10.4%. It’s a little misleading because as you pointed out, jobs may not grow up the same way and production may not go up the same way, and it’s happening in corporate India, not the informal sector.

Yes, but there’s some good news on this front, again the RBI data it’s not going to come from the GDP data but the RBI data suggests that, after more than two years or two and a half years, term lending to non-corporates has actually started to rise and rise reasonably strongly. Now we should just hope, and this is recent this is only the last two or three months, let’s hope the trend continues because there lies our hope.

That is the hope that the informal sector MSMEs will start benefiting from the fresh investment. 

That’s right  

But at the moment as you say this is only two, three months later. And, it is, therefore, I presume a fledgling hope, it has not at the moment it hasn’t fully matured.


Let’s now come to sectors that have actually disappointed in the Q2 results, and clearly the most obvious is manufacturing, which has shrunk by 4.3%, and it’s a much greater shrinking than people had expected. What would be the explanation for this? 

One of the first and most obvious explanations, I mean if you juxtapose this number against the strong consumer growth that you’ve just talked about, so you have consumer consumption growing at 9.3%, and you have manufacturing falling by 4%. Now that’s a very unusual movement. Now one of the things that certainly explains it is that your exports have collapsed over this period.

The second is if the story that we are talking about is correct, and it’s the upper and middle-income groups who have benefited, their consumption factor is much more import-dependent than it is dependent upon domestic products.

And imports have gone up by 89%. 

And imports have gone through the roof. Alright, so what’s happening is incomes are going up, but that income is being used to essentially consume goods which have high import content or are directly being imported. 

This is an instance where if your analysis is correct, private consumption going up is not actually benefiting the Indian economy because we’re buying more goes from abroad rather than goods made here. 

That’s right and the foreigners are not buying our goods.

Quite right so again it’s a sort of double whammy, foreigners aren’t buying our goods and we’re buying foreign goods instead.


Now again I’m quoting Roshan Kishore from the Hindustan Times. He says “whilst manufacturing has shrunk by 4.3%, manufacturing PMI for each of the three months of quarter two has been very significantly above 50%”. Do we, therefore, have a sort of K-shaped situation in manufacturing, where the formal sector as reflected by PMIs is doing pretty well, but the informal sector which includes MSME is pretty struggling?

A worker operates a lathe machine as he makes a steel cutter at a manufacturing unit in Noida, on the outskirts of New Delhi November 3, 2014. Credit: Reuters/Anindito Mukherjee/FilesA worker operates a lathe machine as he makes a steel cutter at a manufacturing unit in Noida, on the outskirts of New Delhi November 3, 2014. Credit: Reuters/Anindito Mukherjee/Files

A worker operates a lathe machine as he makes a steel cutter at a manufacturing unit in Noida, on the outskirts of New Delhi November 3, 2014. Photo: Reuters/Anindito Mukherjee/Files

Well the PMI looks at only 400 companies, and these are 400 very large companies. We know they are doing well, alright. It’s the rest which is not doing well. Now it doesn’t necessarily have to be informal. It could be the smaller of the formal companies as well. I suspect there is a lot of that because, when we do the GDP data, we are looking.

We have no data on the informal manufacturing sector. What we look at is the index of industrial production, which is, they are all formal enterprises, but of varying sizes going down to fairly small ones. And that’s where the damage is coming so it’s really in the smaller of the organised sector. what’s happening to the informal sector, we don’t know, because we are extrapolating, we are assuming that the informal is doing roughly the same as the small form of firms.

I’ll come to the informal sector in a moment’s time, but let me pick up on something you’ve just said about the formal sector. PMIs reflect 400 companies and they clearly suggest that these 400 are doing extremely well. 


But the smaller companies in the corporate sector you suspect are not doing that well. They’re struggling and therefore it is a “K” but it’s a very skewed “K”, where the vast majority, the smaller corporate sector and presumably the informal sector, are all doing pretty badly, and it’s only a small minority that are doing well. 

Yes and it’s a story which would need to be nuanced, because what happens is that in the Indian context, a very large chunk of our so-called formal manufacturing depends on ancillarisation to SMEs. now those ancillaries will write the coattails of the large. And the large cannot expand without the small expanding along with them. it’s the ones which don’t have that ancillary relationship.

Are in trouble. 

Which are in trouble.

Let’s then come directly to MSMEs, because they represent, I believe, something like 30% to the economy, perhaps as much as 45% of employment, but it’s a sort of black hole about which we don’t know very much. What’s your sense about what’s happening to the informal sector and MSMEs in particular? 

Well, as you said, we don’t know very much. There is a survey which has been done. We are awaiting the results of that. but what we will not know as of now, I don’t know whether we’ll ever know it, is what has happened to the overall number of MSME’s that exist, because if as I suspect there has been deaths, then…

Did you say debt or death?

Death of companies. Those are not going to get revived, not under the current circumstances.

And quite a few may have. 

Quite a few may have. We don’t know how much. for that we’ll have to wait for the economic census to happen, and that again for the same reason that the population census hasn’t happened that’s also held up. but until that information comes in, we really don’t know how much permanent damage has taken place. 

So it’s possible theoretically, that a very large number of MSMEs have died and we just don’t know.

We just don’t know. 

And therefore, as a result of those large numbers having died, a lot of people could be unemployed or underemployed.  


This is why their demand has fallen and which is why their consumption won’t be reflected in that 9.6 figure. 

This is correct. 

So actually, we could have a very dire situation for MSMEs. we just don’t know.

Yes as of now, we don’t know we only guess we suspect.

And your suspicion is that it’s a bad situation. 

Yes, I do.

Let’s come to another area where the results seem to be disappointing. I’m talking about government consumption. it’s contracted by 4.4% but perhaps, more importantly, I believe it’s now 20 below pre-pandemic levels. Now at a time when the economy needs boosting, this is clearly counterintuitive. So who’s to blame? state governments, central government, or both?

Well, let’s first get into it, Karan, one of the things we’ve been talking about all the time is the desirability of moving government expenditures away from consumption to investment. that has happened. Government investments have gone up sharply. it’s government consumption coming down. Now the question that arises is, “what are the kinds of things that the government has stopped buying?”. a lot depends on that. On that, we have no information. We just know what the total is. The total has shrunk.  

What would it worry you if they stop buying?

Well, most of the stuff won’t worry me very much, but what comes as a part of government consumption are what are called transfers, alright. income transfers, for instance as a part of government consumption, and if those are going down that’s not good news again, because those are targeted at the poor. 

There are even some reports in the papers that the transfer of money to farmers, which began in 2019 is now lagging behind. 

Quite sharply. 

And, in many instances, it hasn’t happened. 


This would be one explanation why rural demand is falling because they’re not getting the money they were supposed to get. 

This is true and that’s one of the reasons why government consumption could be falling. 

And if this is the explanation then it is clearly counterintuitive because that money if it was paid would boost demand, which the economy needs, but by not paying it you’re retarding demand.

Yes, now this would require us to actually do a fairly detailed analysis of the budgetary numbers. this we are not going to get from the GDP numbers. GDP can only point us in that direction. 

In that direction.  

But this requires an analysis of the government, and this, when I say government, I’m talking Centre plus State, the collective. 

So we won’t have a clear answer until Mrs Sitaraman presents the budget that’s I think is on February 1. 


So we’ll remain in a question mark area wondering-

Well, a certain amount of information is available, in terms of the government does put out some information on its fiscal position.  

But the one thing we agree on is that the money that’s to be paid to farmers has clearly not been paid on time. It’s lagging behind in several instances. newspapers have covered it in fairly extensive detail and that is clearly not good when the economy needs a boost. 

Well yeah and this is not new by the way, Karan. I mean you know governments for a while now have gotten into the habit of delaying the release of payments. Right and on in government accounts payment not made is equivalent to consumption not made. So you could have actually bought stuff and never, just not paid for it. Until that payment is made it’s not going to appear in the government account and it won’t get picked up by GDP.

And therefore the position once again is a bit deceptive and misleading for the rest of us.

That is right. 

A third area where the Quarter Two results are worrying, and we’ve talked about it briefly, is imports. They’ve gone out by an astonishing 89% at a time when our exports are facing headwinds, and actually exports are diminishing, they’re not growing. Could we end up with a current account deficit problem, and do you fear that the CAD could cross 3%?

That’s very much on the cards.  

Over 3%?

Yeah, that’s very much on the cards.

How worrying would that be?

At the moment not particularly worrying because, you know this so long as this is not a long-term trend, you know we are witnessing a very very volatile global economic situation, and during the course of this volatility, these sort of things will happen and can happen. I won’t lose sleep over it. But the trends we are seeing and what little we are seeing suggests that, one, India’s consumption pattern is becoming more and more import-intensive. So a reduction in the rate of growth of imports is unlikely to happen unless there’s a dramatic change in our income distribution in the future. On the other hand, the rest of the world is going to go into a recession, things are going to become a little worse.

So exports won’t grow. 

So exports are not growing.

In fact, they’re shrinking.

That’s right. But at some point, the rest of the world will turn around, hopefully.

But you’re suggesting that CAD above 3%, we don’t know quite how much above, but above 3% is likely to be the situation for at least a year or two. 

Quite possible. 

Until the recession in the West reverses.

That’s right 

And our import demand diminishes.  

That’s right. 

So we’ve got a year or two of a fairly high CAD above 3%.

That’s correct, but I think the financial flows are strong enough for us to be able to weather that. 

The reserves in particular. They’ve gone up this week to 550 billion.

That’s right.

We’re coming to the end of this interview, but let’s look down the road for a moment. if high-interest rates in the West continue, and it seems as if they could, if commodity prices remain elevated including oil, and again that seems as if that could be the case oil dance is around 87-88 for Brent, if the recession in the West is beginning and we don’t know when it will end, and we have no idea what’s going to happen to the war in Ukraine it could end but it could continue, in those situations, I imagine that India is not going to get a lot of economic support from the global situation. Therefore the growth story in 2023 and 2024 is, I presume critically, dependent upon domestic demand and domestic consumption. 

This is correct. I mean we should not expect any help from the global economy. If anything, we as a country may help the rest of the world, which is good for our egos if nothing else. But, yes we will have to depend upon domestic consumption. Now if the pattern of domestic consumption that we have witnessed, if this income distribution trend continues, our domestic demand growth is not going to be that high. Right. We do need to correct this distortion, because it’s really the real increase in domestic demand comes from the poorer classes. and get more income out to them I think is important.

That’s one point. the other is if domestic demand does continue in the pattern in which it is, your demand for imports is going to keep increasing and that’s a worrying factor. 


So you want domestic demand to increase, but you want it to increase amongst the poor rather than that much more amongst… 

Lower middle class and the poor. 

And that’s where income support becomes essential.

Well it’s, income support is a palliative. It’s not a solution. 

But we may need it for a year or two.

We may need it for a year or two given what’s happening in the rest of the world. but the focus should be reviving the SMEs as quickly as possible.

Let’s come to that by talking about unemployment and the falling labour force participation rate, because if domestic demand is important to keep growth going in 23-24, then unemployment is the worrying factor and certainly falling labour force participation is a worrying factor. Now, the Centre For Monetary, Indian Economy says that in November unemployment was 8%, the highest in the last three months, and I know that for the first few or maybe many more months of this financial year the demand for ENREVA has been substantially greater than it was in the last pre-pandemic year.

And I take it that means two things: people don’t have jobs but more importantly, perhaps because they don’t have jobs they’re not creating the demand the economy needs. So if we are dependent upon domestic demand for 23-24 unemployment and falling labour force participation are working against our interests.

No, the falling labour force participation rate is a huge worry. Our labour force participation rate is embarrassingly low. We’re one of the lowest in the world. and it’s something we need to think about. What is going on out here?

Why are people dropping out of the labour force? Although the CMIE number is a little worse, the government’s labour force survey gives a little higher number than that, but it’s still very very low. But that’s a long-term fix and that’s not something going to fix immediately. Now as far as unemployment is concerned, everybody agrees it’s somewhere in the 7% to 9% range. Now unfortunately we’ve been conditioned to think that our base unemployment level should be about 6%. That’s not true. Historically until 2016, our unemployment rate used to be about 3%. So three to 8%, that’s 5% of the labour force. 

And it’s happened in the last six years. 

Six years. It is not a small number. That’s a huge number. It’s that 3, 3.5% unemployment rate that we should be targeting. And that’s in the short to medium run. Labour force participation is going to take time because there are, I think, behavioural issues involved there, but that should be worked on as well because otherwise, we will not be able to fully utilise our growth potential. 

But you’re saying something again that I think is very important, during the Modi years from 2016 to 2022, the economy may have been growing somewhere between 6% and 7% a year, but during that period unemployment has also grown by a sizable 5% or 6%.


This means that economic growth has benefited the rich who have jobs, but the poor have been losing jobs. Which is why demand is a problem. 

That is a part of this. 

And this also means that we’re becoming a more unequal nation.

Yes, which is why you’re seeing weakness in wages, not just rural wages. Even urban unskilled labour the wage rates are not going up strongly enough.

I think this is what people call jobless growth. The economy is growing at 6 to 7%, jobs are diminishing.  


With all of that in the background, let me put my last question to you. Some agencies, like NOMURA and UNCTAD, are actually forecasting that India’s growth in 23-24 will be just 4.7% in the case of NOMURA 4.8 in the case of UNCTAD. The government strenuously refutes this, but could it end up as bad as this?  

Let’s look at the government’s own figures. They’re talking about a 7% growth in the current year. What that means, given the numbers we’ve seen, means that in the last half of this year the economy, by government figures, would be growing at 4.5%. NOMURA is extrapolating that. Why does this surprise you? Because in this last half we don’t have the base effects of the first half of the year. where last year things were depressing. We are over that hump. So all they are doing is extrapolating, and I don’t see any reason why the government should get particularly agitated about it.

So if I hear you correctly, you’re saying 4.7, 4.8 may well be what we manage in 23-24?

Yes, unless measures are taken. You know all of these are conditional: the economy does react to policy, the economy does react to budgetary stimulus, the question is what does the government plan to do, which we will find out in February. 

So the interesting thing is this unless measures are taken we could actually end up in 23-24 with just 4.7, 4.8%. 

That’s right. 

Very quickly, what are the measures you think the Finance Minister should announce in the budget? One, I take it, is income support for the poor to make sure their demand goes up.

No I mean you know as I said, that’s that is a palliative, that’s a short-term fix for the demand problem. That’s not a solution, it can’t be done continuously. you really need to focus on how we get the SMEs back, and the problem that you’re going to have there is that the corporates have already captured a large chunk of that market, and they’re not going to give it up without a fight. so it’s going to be an uphill struggle and it’s something that the government has to think through because the government does have very limited instruments that it can use. 

We know now, from your answer, that the key thing is to revive MSMEs and get them back their market share, but what should she do to make that happen? is it money and credit or is it something more?

No, no credit, you know, what we are talking about is people actually starting new enterprises, or expanding their existing enterprises, which requires essentially term loans, not working capital. Working capital comes after you start production. At the moment term loans are not guaranteed. The government has given guarantees for working capital loans but not for term loans. And that is something that the government may want to look at quite seriously.

Is this a sort of “Mudra Scheme”?

It is the “Mudra Scheme” but the “Mudra Scheme” is not a guaranteed scheme 

This now needs to be guaranteed it may well need it. 

I don’t know. 

So term loans. 

Term loans are critical. 

And possibly guaranteed by the government. 


And how do we make sure that the MSMEs actually avail them?

That you cannot. The only hope we have is that as a country we have displayed very high levels of entrepreneurship. and let’s hope that sense of entrepreneurship continues to be there among the youth of today. 

So side by side with term loans, which are possibly guaranteed, you’re also relying on the sense of entrepreneurship of the Indian young. In other words, their determination and ambition to improve their lives are really what we’re counting on. 


We could help them with term loans, but if that ambition and determination have somehow disappeared we’re in serious trouble. 

Then we’re in serious trouble, yes. Then you have to rethink everything from the bottom up. 

And that is a terrible situation for any country to be in. 

This is true.  

Because you don’t know where you start. 

Well, yeah in a sense, one has to revisit all the beliefs we had about our economy. and one of the beliefs we had is it’s a vibrant entrepreneurial culture. 

So at the end of the day, the future of the Indian economy hinges critically on Indian young people retaining their entrepreneurial spirit and the ambition to push it ahead.

That’s right.  

We don’t know if it exists and we have no reason to believe it doesn’t either, but it needs to manifest itself. 

Yes, and we need to help that along. 

And we need to help that along. And that’s the key task for the Finance Minister in her budget. 

Yeah, I think so. 

When that budget is presented, we must get back together and I very much want to hear whether the Finance Minister has done what clearly she needs to do. Thank you very much for this interview. It’s a gloomy depressing note we end on but I imagine it is also the truth and reality. Thank you very much. 

You’re welcome, enjoy your day.