'GDP growth for FY24 will be close to 7%': Economist Sanjeev Sanyal dispels concerns around Indian economy

Sanjeev Sanyal wears many hats. Economist, historian, best-selling author—he dabbles in many things. But it is the hat he wears as Member of the Economic Advisory Council to the Prime Minister that is most crucial in the current context. “We are macroeconomic conservatives,” he says. In an interview with Business Today, he talks about the current economic situation, dispels concerns that India’s FY24 fiscal deficit target of 5.9 per cent may be breached and more. Edited excerpts:

The economy grew at 7.6 per cent in Q2FY24. Do you think GDP growth in FY24 will be higher than the 6.5 per cent estimated? What about FY25?

The growth numbers for Q1 and Q2 of FY24 have clearly been stronger than what was being anticipated by most forecasters. It is very likely that GDP growth for the full year [will] be close to around 7 per cent. What is important is that the growth push has come from the secondary sector rather than from the tertiary or the primary sector. The growth momentum is very strong and almost all the high-frequency indicators suggest that it is good. There are statistical reasons why the headline growth rate may come down but that is only because of the base effect. The biggest constraint to GDP growth right now is the external sector, given that much of the world is slowing, and there is a lot of geopolitical uncertainty. There is also the issue of very tight monetary policy in the rest of the world, which impacts capital flows as well. Given these constraints, our GDP growth performance is quite creditable.

Domestic inflation, especially volatile food prices, has been a problem. Do you see it as a serious challenge?

The momentum in domestic inflation is well-contained. Virtually everything, other than vegetable prices, has been generally well behaved. Overall CPI inflation has been in the range of 2-6 per cent, WPI is negative. And this is not just about inflation; the overall macro stability indicators are all in good shape. So, for example, bank NPA numbers remain low, the banks are well-capitalised and have good liquidity. Similarly, although exports are weak, imports have also been weak. Thus, the current account is not under stress, and foreign exchange reserves are around $600 billion.

Are you concerned about potential distress in the rural sector and the agriculture economy?

There were weather-related issues, which may have influenced the agriculture sector growth in that particular quarter. But even the rural economy is no longer dominated by agriculture. The bulk of incomes… is generated by other sectors, whether it’s infrastructure build-outs, the services sector, etc. These continue to do reasonably well.

The fiscal deficit target of 5.9 per cent for FY24 is being perceived as a risk due to the General Elections. There could also be a shortfall in revenue from disinvestment of PSUs. Your views?

We are macroeconomic conservatives. Even through the Covid-19 cycle, we did not excessively pump up monetary or fiscal pipelines. We will continue to be conservative on both those fronts. There is more than adequate revenue coming in from different sources—GST, or from direct taxes. I don’t think there is any danger of a revenue shortfall or irresponsible spending. Even the quarterly numbers on [the] fiscal front indicate that we are well on target.

There has been much debate on the issue of AI regulation. What kind of domestic regulations should there be for AI?

AI is a major growth area, and India will play an important role in this space in the future. There is a lot of discussion about the misuse of AI and the possibility of it being a runaway, self-generating system that may cause havoc. In that context, let me say that the Indian approach will be to eventually evolve a regulatory system that balances the need for innovation, with making sure that bigger socio-economic risks are taken care of. Balancing these two is not easy. There are other segments and sectors where we routinely balance the need for innovation with the need for regulation such as the financial markets. The problem is that right now nobody in the world has come up with a good system. The US is, by and large, going with a laissez-faire approach. On the other hand, the Europeans have gone for a much heavier approach, which requires them to predict how AI will evolve, which, of course, is not possible. So, both these approaches will ultimately face problems. India needs to find a third way, which is more balanced.

What are the key reforms we need in the future?

There are many reforms that [we] need in the administrative bureaucracy as well as in the judicial system. These are all the big reform areas that need to be tackled over the next decade or so. Meanwhile, a large number of small process reforms also need to be done. People like large structural reforms, but many of the required high-impact reforms are actually small process reforms that may relate to a specific sector or sector-specific activity. These do not require changing the entire structure... I am a believer that doing these small process reforms is a very important part of improving India’s competitiveness and ease of doing business… They don’t change the structure of the system in themselves but have a large cumulative impact.

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