In this discussion, Nirupama Soundarrajan is throwing light on range of economic issues from NPA's of Banks to performance of the current government.
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00:00 Reports after reports are coming into the public domain which are showing the poorly
00:03 performing indicators all across the sector, be it automobile or be it a manufacturing
00:08 industry.
00:09 So, to talk more about it and to know how grave and what is the scale of the economic
00:14 crisis that we are railing under.
00:16 To talk more about it we are having with me Nirupama Sundararajan.
00:19 She is a senior fellow and a head of research at Pehle India Foundation.
00:24 So thanks Nirupama, thanks for joining us.
00:26 Firstly, I would like to start off with a very important question, the report that has
00:30 come out from Pehle India Foundation, of that report you are a co-author.
00:35 And that report talks about sector specific approach for improving ease of doing business.
00:40 So can you so write on that report, what are the premise of that report, what are the methodologies
00:44 you adopted?
00:45 So, when Pehle India Foundation first began to work on ease of doing business, we began
00:51 like most other frameworks which was looking at it state wise.
00:55 However, we found when we analyzed basic back of the envelope kind of calculation, we looked
01:02 at data of GSDP and improvements in ranking, we found there was actually no impact of the
01:10 improvement in rankings for state on their respective GSDPs.
01:14 So we began to wonder why that was the case, because at the end of the day an improvement
01:18 in ranking is supposed to attract more investments and create opportunities for employment and
01:24 growth.
01:26 We realized that this is probably because of two reasons.
01:29 One there is usually a lag between a time of a report, an implementation of a reform
01:36 and the impact.
01:37 But second more importantly we believe that because the recommendations are more at a
01:44 macro level in terms of what states have to do, they may not have the desired impact on
01:50 a sector per se.
01:52 So for example, even for states that have been traditionally at the top of the ranking,
01:58 it is not that all sectors contribute equally or that all sectors have no problems at all
02:04 in functioning.
02:06 So we believe that if you take a sectoral approach to ease of doing business, then states
02:12 will have the right to choose which sectors really matter to them and look at each of
02:17 it separately and focus on easing doing business for those sectors.
02:22 We also believe that it will not be sufficient to just look at single sectors and silos,
02:28 but to look at an entire value chain, which means looking at input sectors, looking at
02:32 output sectors, thereby creating a framework for an economy to grow.
02:37 And our hypothesis therefore is that if you take a sectoral approach where states can
02:42 choose the sectors they want to concentrate on, depending on the potential the sector
02:46 has to contribute to growth, we will see more quantifiable gains for the state in terms
02:51 of both GSDP, employment creation and even investments coming in.
02:57 So that was the premise.
02:58 So you talked about the report, which are the specific sector you picked up for like
03:03 studying all the things about the ease of doing?
03:05 So we undertook a case study of three sectors, which were sugar, alcohol, beverages and tourism.
03:12 And we picked these three sectors for three reasons actually.
03:17 The first is, it's an excellent kind of interplay of agricultural sector, manufacturing sector
03:24 and services sector.
03:26 The second is because sugar as a commodity is centrally regulated, the alcohol beverages
03:32 is completely state regulated, and tourism is both center and state regulated.
03:38 And the third reason is because sugar acts as an input industry for the alcohol beverages,
03:43 and tourism acts as an output industry.
03:46 So for us that kind of established a value chain not only in terms of sectors, but it
03:51 was also very interesting for us to look at it from a regulatory point of view, and also
03:56 from the interplay between your traditional three sectors or three areas that define an
04:01 economy which is agriculture, services and manufacturing.
04:06 What were your findings of this report?
04:09 So we had some very interesting findings that emerged.
04:12 So from a macroeconomic point of view, we do believe that easing doing business will
04:19 help sectoral growth.
04:22 And I think that will add to the GSDP.
04:25 For example, in most states, after GST and after stamp duty, the alcohol sector and excise
04:34 collection through that sector is the largest contributor to revenue.
04:38 So that sector has often been used as a way to generate extra revenue and sometimes even
04:44 to fund disaster relief or to fund farm loan waivers by raising excise duty in a random
04:52 manner for a short duration of time, etc.
04:56 We also found that from an excise point of view, procedures are almost all across all
05:03 states, almost all of them are offline.
05:06 So digital India hasn't really penetrated into the excise department and in terms of
05:11 process approvals or putting any of them, so they all still work on paper trails.
05:16 So that was another big finding and also therefore a recommendation for us.
05:20 The third we found is for the hospitality sector, which is a large contributor of tourism,
05:26 they seem to suffer because of a lack of any kind of vision document or for the lack of
05:32 any kind of nodal department or ministry and I think they will benefit from that.
05:37 For sugar, we found that it's an incredibly regulated sector where everything from the
05:43 kind of price at which they procure their input material, which is sugarcane, to where
05:49 they procure it from, to in terms of how much sugar they are producing, how much sugar they
05:54 can sell and at what price they sell, they are very, very controlled.
05:58 It's a highly controlled commodity and we find that because of that it has resulted
06:03 and actually the sugar mills suffering the fate that they have today.
06:07 These have been some of our broad findings.
06:08 Moving on to the next question, I would like to ask you seeing the current economic slowdown
06:13 and the scenario of the country is really under, what's your quick take on that?
06:17 Like there are divergent viewpoints on this, is this a structural slowdown, it's a cyclical
06:22 one, what's your take on that?
06:23 See, I think a slowdown is there.
06:26 I will not use the word recession, I think that's incredibly extreme.
06:30 I do definitely think there is a slowdown.
06:33 I think that's largely because there are no investments, private or public, that has happened
06:39 and I think consumption has also slowed down.
06:42 Consumption has slowed down because at the end of the day you see a situation where incomes
06:46 are not being generated and incomes are not being generated because your private sector
06:52 or your public sector, your industry and your services economy has taken a beating.
06:57 So therefore the trickle down has affected across the economy.
07:01 I think a fiscal stimulus is necessary in terms of what you can do for consumption.
07:05 I know Finance Minister Ms. Sitaraman has been announcing multiple reforms that she's
07:12 hoping would target and create that impetus for growth to restart.
07:18 Having said that, I also believe that there are some sectors that the government should
07:22 probably focus more on.
07:24 Through this report and through some of our earlier reports, we have been talking about
07:29 tourism as a sector that can actually generate a lot of growth, purely because of the amount
07:36 of interlinkages that it has.
07:39 And I do believe that we're not, you know, kind of giving tourism the kind of attention
07:44 that it requires.
07:46 Secondly, I don't think manufacturing is going to solve all our problems, especially
07:51 your traditional manufacturing sectors.
07:53 Therefore we need to think a little differently.
07:56 We should be focusing on construction and real estate a lot more, again because of the
08:01 vast interlinkages that it has.
08:03 I believe if you can look at a couple of these focus sectors and again connecting it back
08:08 to the report and ease doing business for these sectors, you will see immediate growth
08:13 opportunities and immediate employment opportunities.
08:17 So you said that N. Lassiteraman introduced several measures from bank merger to rolling
08:23 back of FPI side chart.
08:25 Do you think that these measures are enough to solve the crisis that the country is facing
08:29 in terms of economy and the consumption problem or the NPS?
08:33 Do you think that all the measures taken by her are enough to solve the problem?
08:38 An economy is something which is very large and something which is beyond repair through
08:44 just a few kind of suggestions and that too for a country like India as diverse in terms
08:50 of economic landscape as it were and the kind of problems faced.
08:56 So I will not say these are enough, but I will certainly say they do contribute to the
09:00 process.
09:01 It is always going to be incremental.
09:04 It is never a magic wand process and you will see each of them playing their part in supplementing
09:10 other reforms and in complementing other reforms which collectively will lead to economic growth.
09:16 So I think it would be unfair to pick up each of them and look at them for their own merit
09:22 in what they do.
09:23 I think the impact will be felt when they looked at collectively and they looked at
09:28 in terms of what happens after a couple of months because as I have already mentioned
09:32 there is a lag period.
09:33 So each of them will do their bit by all means.
09:37 And so the next question is about the NPA.
09:39 We are talking about the bank merger NPA.
09:41 Some government bureaucrat said that the current NPA are due to the indiscriminate lending
09:47 that started in the time of the UPA.
09:49 So do you think and do you agree with this statement and what is your take on that?
09:54 I do have to agree with the statement of indiscriminate lending during a particular phase.
09:59 I think when the UPA government was there you saw bull runs happening in the stock market
10:06 and you had a general sense of growth that was prevalent.
10:12 And I think industry was excited and as was the bank.
10:17 So I think there was a lot of indiscriminate lending and because the returns that one got
10:23 was so high I don't think the lending was really backed by fundamental reasons which
10:27 is probably why we are in the soup that we are today.
10:32 (scratching)
10:35 [BLANK_AUDIO]