Not Tatas or Birlas but SMEs will create jobs: Ajit Ranade

Shweta Punj:  There was a lot of messaging around the US elections on restricting migrants, increasing tariffs or lowering of corporate tax rates. What would that mean for India?

Ajit Ranade: Let's look at five different impacts of the Trump presidency, Trump's second presidency. As you said, tariffs, immigration, climate change, a strong dollar and impact on monetary policy, and, of course, other global stuff.

Look at the impact of tariffs on Chinese imports into the US, when it comes to steel, non-ferrous metals, chemicals and consumer goods. The Chinese already are in a slowdown phase and they have excess capacity. So those goods will be diverted to other destinations, including India. So India will have to worry about a potential deluge of Chinese imports at low cost, even lower than the cost of production.

Even after paying punitive import tariffs, Chinese goods may actually be cheaper than those produced by domestic companies. It's definitely a threat.

So, that is one direct impact of Trump's tariff action. On immigration, of course, he is promising very stiff action against illegal aliens. But on legal immigrants, there has been a lot of discussions about H1B visas. So, any restriction on H1B visas can potentially affect India's software exports to the US. But I must say that, increasingly, the mode of delivery is offshore. So, to some extent, the restrictions on H1B visas are more than adjusted by locating the service facilities outside the US. But that is something we need to watch out.

On a strong dollar, the third thing is that Trump has this somewhat contradictory desire. On the one hand, there is talk of a new Plaza Accord, where he wants to force his trading partners, including China and Europe, to strengthen their currency, so that the dollar becomes weaker and is more competitive for American exports.

On the other hand, he is committed to a strong dollar as well. His actions, like corporate tax cuts, are going to actually invite more inflows into the US, strengthening the dollar. Even all this uncertainties and potential slowdown causes, paradoxically, a lot of money to flow to the US, which causes the dollar to strengthen.

This is something we have to watch out. A strong dollar, of course, helps India's exports, especially software exports. But we also have to worry about the cost of imports and the inflationary impact.

We recently had the COP29 (29th Conference of the Parties to the UN Framework Convention on Climate Change). There is supposed to be almost $300 billion coming every year, but it's not coming. There has been no visibility of that. So, India has to chart out its net-zero path without substantial aid from the West.

On monetary policy, I think Trump prefers to have lower interest rates, despite inflationary conditions. That will also have an impact on India. So we'll have to see. If the inflation differential between India and the US is larger, that might mean more flows coming to India, but we'll have to watch that out.

Otherwise, on balance, I think it's a period of uncertainty. And we have to be very careful, especially, as I said, through the tariff action directly, a threat of Chinese imports.

Shweta Punj: In this scenario, what, according to you, should be the key priorities for India? How should India navigate as far as trade talks and its currency are concerned? The RBI has been intervening to soften the blow on the rupee, but they've refrained from doing so in the last few days. What, according to you, should be the policy actions? How should we brace up for this Trump impact?

Ajit Ranade: Yeah, the Trump impact is an additional factor we need to take into account now. It's a global factor, but we have our own domestic challenges as well. So, as you know, this is a year of slowdown. The last quarter GDP came at 5.4 percent. This year, we will be lucky to get to 6.4 percent overall, which is a very sharp slowdown, compared to 8.2 percent last year. I think our main challenge is to revive GDP growth rate to, at least 7, if not 7.5 this year, that is FY26, and to make it inclusive and employment-intensive. So, there's not just GDP growth, but growth in investment and employment and output as well. That is our domestic agenda. To do that, we need to look at, for example, what is going to drive growth. We need to have exports. Exports are a very, very significant growth driver.

Thankfully, our software services exports, which are expected to touch $250 billion, are one major growth driver. We have to ensure that growth continues, despite the other challenges I mentioned about H1B and so on.

The other thing is how to make our growth employment-intensive. We've had a situation where consumer spending is actually slowing down, which is a big part of GDP, of over 60 percent. That is not growing strongly. That, in turn, depends on household incomes, which largely come from wages and salaries. However, wage growth has been sluggish. So, I mean we have enough things to take care of domestically. In addition, there is uncertainty caused by President Trump’s policies.

Shweta Punj: Talking about the second quarter number, of the 5.4 percent, it came as a shock to several economists. What did they miss, Dr Ranade, that time around? Also, you said that this is the year of the slowdown. Now, what kind of a slowdown are we looking at? Are you looking at a cyclical slowdown? Are we looking at a structural slowdown?

Ajit Ranade: See, by the way, this language, this cyclical versus structural, actually refers to what comes from the western business cycle… you know ups and downs, and boom-and-bust cycles.

Those actually occur more when you have a situation of full employment or near-full employment. I remember in the early 2000, 2003, 2004, we had excess investment in, let's say, the steel sector. So, suddenly you have too much capacity being created, but demand is not, you know. So then that will be followed by a slump in investment.

These boom-and-bust cycles happen more in the context of a developed economy. For India, I think it is less cyclical, more structural. I mean, we are not yet in a situation where we are always in full employment. In fact, our unemployment rate is high, or underemployment as well. So I think our challenges are more structural, and less cyclical. Although increasingly, cyclical factors are important, there is overinvestment in the cement sector or too much capacity being created in steel or cement.

Now, we hear that some airlines are in danger because there is consolidation. Sectorally, that may be true, but the boom-and-bust cycle of overinvestment is followed by stagnation. But generally, at the aggregate economy level, I think it's more structural, which means that we need to break out of this 5.4 percent, 6.4 percent GDP growth rate.

As I said, we need to look at what are the main drivers of growth from the demand side. It's consumer spending, exports, it's government spending and investment spending. We need to focus on each of these four factors. We just talked about exports. Consumer spending, as I said, depends on household incomes, on wage incomes. And investment spending largely comes from the private sector. These are the kinds of things we need to look at.

Shweta Punj: How much of a climbdown is it? To what extent does this push us behind, in terms of our goals to become a $5 trillion, $7 trillion economy and to become the third-largest economy in the world?

Ajit Ranade: See, for us, growing at a 2 percent or 3 percent GDP growth rate is barely keeping pace with the growth rate of the population. So, people might ask why do you describe 5.4 percent a slowdown. That's because, in our context, in the context of a developing country like ours, which has a youthful and growing population, our per-capita incomes have to grow higher. Among the G20 countries, we have the lowest per-capita income.

So, if we want to make a big dent on that, we need inclusive, sustainable, and high economic growth. That is imperative. That can happen only when our GDP growth is employment-intensive, creating relatively productive and high-paying and high-quality jobs. So the focus has to be on job-creating, employment-intensive sectors.

And the slowdown happened, look at the drivers of growth. Private investment spending has been very sluggish, very stagnant for quite some time, not just now. We need a total investment to GDP ratio for something like 8 percent GDP growth. We need it to be 35 or 36 percent. We are barely at 30.5 or 31 percent. So far, a big push has come from government spending, government spending on infrastructure and so on, on capex, capital items.

The government is going to face fiscal limits. The central government plus state governments contribute something like 5 percent of GDP on investment spending.

So, a big chunk of almost 28-30 percent has to come from the private sector. And that includes, of course, not just large corporations, but also households. There are household enterprises and small, medium, and micro enterprises. Together, that should be something like 28-30 percent of GDP. Today, we are stuck at something like 23-24 percent. So we need a big push from the investment spending side.

Shweta Punj: Let's look at it from a sectoral point of view. If you look at sectors, agriculture has shown a reasonable growth rate. This is before the Kharif harvest. We saw decent growth there. In services also, it seems like people are spending money. However, I'll just go back to the point you made. It's the industrial growth, the investment, the private investment, which seems to be the biggest laggard here. Industrial sector growth was 2.5 percent.

A lot of FMCG companies, in their earnings announcements, have said that there has been an issue of urban stress. Urban demand has taken a hit. Rural demand, however, is not such a big concern. So, private investment will go up only if demand gets a push. We have seen a fall in demand. Any insight on why have we seen such a consistent fall in demand? Also, what's your outlook on demand? The third part of that question is whether the budget can address that in some manner?

Ajit Ranade: Look at the GDP growth rate and break it up by sectors, agriculture, industry and services. The big push has to come from, see, the agriculture sector. At best, it is about 14 percent of the GDP. In the best of situations, it can grow at around 4 percent. That's not where the main growth is going to come from. The main growth is going to come from industry and services.

The services sector, of course, have been growing well. But it's the industry segment which has the biggest bank flow. That is the one which needs to grow at 10-12 percent. The share of industry in India's GDP has to grow. Manufacturing, especially, has to go from 15, 16 percent, right now, to 20 percent. So that's where the biggest focus has to be. Now, if you break up GDP into rural and urban segments, whether we like it or not, GDP grows faster in urban areas. Urbanisation is a big growth driver. It's not the rural areas. It's not a rural economy where GDP can be a huge driver of growth.

That means we need to worry about urban consumer spending and activity. Of course, urbanisation has many other challenges. Ease of living in urban areas has to be much, much higher. But the way you break up GDP growth, the bang for the buck is higher in urban areas.

Similarly, if you break up GDP into primary, secondary and tertiary sectors, it's the tertiary sector. That's how, you know, it's like an ABC analysis. We need to focus on where can we get the biggest bang for the buck, in terms of driving GDP growth.

See, the fact is that, after COVID, you say, rural spending is good. The fact is that the proportion of population in agriculture has now gone up, instead of shrinking. That is kind of, not by choice. It's like a distress. It's not a happy development because agriculture notoriously has surplus labour.

We need to find ways to absorb that labour, the workforce outside agriculture. The solution to agriculture is outside agriculture. The fact is that the proportion of workers in industry, at least in the organised sector, has been stagnant for a very long time, just about 12, 13 percent, not even that, I mean, just a constant number.

So, we are not able to generate enough jobs in the formal sector. So, as I said, there have been a lot of initiatives from the government, like the National Apprenticeship Scheme  -- the scheme to encourage the private sector to absorb workers, to train workers, to train apprentices.

Employment and all that is actually a State List. Constitutionally, it's not the Union government. But we need to look at what's the national employment and apprenticeship policy. Can we look at labour laws? Are labour laws restricting, thwarting employment-intensive growth or not? Our main asset is people.

We need to focus on people-focused, employment-focused growth strategies, and enhancing human capital. By the way, one of our major export earners is software, which is again a people-intensive business. And remittances ... it’s $129-$130 billion, and growing every year. Remittance is nothing but export of labour, our diaspora, which is sending money back. So labour and human capital is our forte, our strength. We need to do much more to increase the potential of human capital in India.

Shweta Punj: Let's quickly go through, you know, what the budget can do this time around to really address these pain points. We've seen a lot of focus on capex, which has been one of the success stories of this government. This is the third term of this government. They've come back with a majority. So this is the time, right, for them to do something big? What can they really do, you know, to quote a finance minister, unleash the animal spirits?

Ajit Ranade: That exactly is the key. It's not a question of lowering taxes or increasing spending or subsidies. As it is, there's limited room. Seventy seven percent of the Union budget is spending on revenue items -- committed items like subsidies and interest rates and pensions and salaries.

Let's not forget that we are not in a very comfortable fiscal situation. People keep saying, look at the deficit, it's about 4.5 or 4.7 percent of debt to GDP. But, you know, look at our debt servicing ratio. It's really an outlier. It's much higher than any of our peer countries -- the highest in G20. So, we need to look at signals from the budget, which encourage job creation, new enterprises, and ease of doing business. I think this is where we need to find ways.

For example, you know, all this, while industrial policy and ELI (employment-linked incentive) is okay, we need to find ways to, as you said, unleash the animal spirits.

When we say we need about 15 million jobs, new jobs every year, that would mean we need at least half a million new enterprises to be born every year. It's not the large companies like Tata, Birla, Reliance or Adani that’s going to create jobs, or even the railways or the postal department or BSNL… it's going to be the small, medium and micro enterprises. How difficult is it to start a business? It's not just the ease of running a business, not just the ease of doing a business, it’s the ease of starting a business and the ease of closing down a business as well.

Look at the complications of GST registration. People say that nobody can start a business without first registering for GST. It's supposed to happen online immediately, but people say it takes two, three months, even longer. So there are so many, all this minutiae, you know, the nitty- gritties of doing business, starting entrepreneurs. There is the startup economy, you know, we are celebrating that.

But really, what are the pain points of starting, running and closing businesses at the micro level? That's where I think the action is. And of course, it would help by making the tax structure simpler. The whole philosophy of tax reform is lower taxes, fewer exemptions and stable policies.

Shweta Punj: Right, I want to get your thoughts on how you are viewing consumption, going forward? We saw very subdued consumption up till the second quarter of FY25. Do you see a pickup? GST collections have seen a pickup. So, there's a sense that the worst might be behind us and there could be an uptick there. Then we've had a good Kharif crop also. So people are spending. Do you see the next two quarters to be better in terms of consumption data?

Ajit Ranade: So, consumption spending makes up something like 60-65 percent of GDP. If we want GDP to grow at 7.5 percent, consumption has to, at least grow at 6 percent, but it's barely growing at 2-3 percent. And there, you know, leading companies like Nestle and Hindustan Lever are worried that consumer spending is not increasing. In fact, the Nestle chairman said he's worried about the shrinking middle class. So, I think that's where we need to look at. As I said, consumption spending is related to household incomes. Household incomes are related to wages and salaries. And they're related to wage rates, which is related to employment. Perhaps this is one area where we can look at an innovative idea, which has probably been discussed earlier, which is in the form of consumer vouchers.

If you want, you know, in a DMAT or digital form, you give digital vouchers. They've been tried in other countries. For a limited period of, say, six months, you give digital vouchers, which can be used only in designated industries or designated sectors or even designated geographies to stimulate the local economy.

That will stimulate consumer spending in a very virtuous circle. You give consumer spending, which is in the form of digital vouchers, which can be used in a local economy, which then boosts local producers and so on and so forth. That's a limited idea. But generally speaking, I think consumer spending is related to household incomes, related to wage and employment growth. This is a very strong nexus.

Shweta Punj: That's right. Also, there's no coming back, right? You introduce consumer vouchers, and then you can never take them back. But if you just look at, you know, whatever indications we've gotten in terms of investment intentions between April to June, there were no announcements because of elections. So, do you see a turn in sentiments after Modi coming to power? Do you see rural demand and urban stress picking up a little bit? Do you see that changing?

Ajit Ranade: So, one explanation for the quarterly data coming down to 5.4 percent was national elections, the code of conduct, suspension of some government activities and so on. This may be partly true, but we should not depend only on government to drive growth. The story of the government's posture has been to strongly push for infrastructure and government capital spending to push growth. But that can only work up to some extent. We have to, you know, in the longer term, find out more sustainable ways, and, of course, employment-creating ways to promote private spending.

People say interest rates are going to spur spending on investments. I think it's not so much investment. It's not so much interest rates. By the way, to answer your question, I see a revival coming. Now that we have, for example, Trump, you know, even though it's uncertainty, at least now we know. To that extent, the uncertainty is lower.

My sense is that despite all his, you know, rhetoric, Trump is supposed to be business-friendly. If there's any negative impact on the stock market, we'll be extremely sensitive about it. We will try to make the sentiment positive. In India, if we don't have too much adverse impact on the export sector, I mean, on software services, that should be good. I see consumer spending reviving to some extent. The budget would be a big factor. We will also have to see what happens globally because India's prospects cannot be delinked from global prospects. The third-largest economy in the world, Germany, is now going to have two consecutive years of recession, negative contraction.

And China is also slowing down. So we cannot be completely immune to those things.

Shweta Punj: But you do keep saying that the robustness of our economy will save us and our wealth lies within the country. It lies within the domestic electorate and so on. That is something one gets to hear a lot about.    Ajit Ranade: Yeah, see, but you cannot deny, for example, at the turn of the century, a very big, strong middle class was created because of the IT revolution, whether it's Y2K-caused or whatever, you know, it had a huge impact.

It has a multiplier impact. So we cannot be completely disconnected from the export sector. Exports are definitely a strong driver of growth, not just because of the export revenues and employment. They bring know-how, they bring technology. They connect us to the world and make us more competitive. The competitive pressures of selling in the global marketplace… all those are intangible benefits. There is foreign investment which comes in.

All said and done, India is still a developing country, and the per-capita income is barely about $3,000. So, we need a strong push to be able to tap into the global economy, even if our share of manufacturing in global trade is barely about 2 percent. So, even if we go from 2-3 percent, it's a 50 percent boost for us. Surely, that's a very fairly modest target to achieve, to aim for. I don't think we can ignore. Therefore, by the way, we should not just trade for that. We should not turn more protectionist, just because Trump is turning protectionist. We should not have these policies of quality control order, all kinds of non-tariff barriers. Our exports are very import-intensive, even if we are now exporting 30,000 crore or 40,000 crore of iPhones. But their import component is very high.

We're exporting petrol and diesel, again, with very high import content. Also, diamond and polished diamonds. So we cannot raise tariff walls. Our tariffs should be moderate. We have to focus on being part of global value chains, and on creating employment, not so much protectionist. In fact, we have to aspire to be globally competitive.

Shweta Punj: How about India's economic stance with China? Do you think India needs to ease up a little bit and keep the economic trade war separate from what's happening on the borders?

Ajit Ranade: Yeah, I think so. Together, India and China make up 40 percent of humanity. They are neighbours and they're both not just, you know, they're maybe relatively modern young countries. They are ancient civilisations. So we cannot ignore. As far as China-India linkage is concerned, I always like to say there are four different ways of engagement.

There is G2G (government to government), military to military, people to people (P2P) and business to business-level engagements. I feel we can have compartments. I mean, I know that post-Galwan, it may sound a little ambitious to say, but now I'm glad to see that there is a considerable thawing of relations. I do believe that we have to be very strategic, you know… the thing to do is aim for strategic autonomy. We will remain engaged with China, whether it's trade, commerce and investment for the foreseeable future.

There's just no way we can disengage… just out of the question, unthinkable. But we have to find a way, how can we make the relationship, and to reduce the asymmetry? It's too asymmetric, right now. So China represents $6 trillion, $7 trillion of consumer market. Why can't we aim for at least 1 percent market share? About 120 countries export to China. Why can't India's share be at least 1 or 2 percent? What does it take to crack the Chinese consumer market? What are the areas where we can invite Chinese FDI, which can, to some extent, compensate for our trade deficit? Are there not areas in India's sectors which are not so sensitive? You know, we don't have to invite them into telecom or some defence-sensitive sectors, but surely, in infrastructure, roads, airports, we should. I'm told that despite Press Note 3, which was issued in March 2020, before Galvan, Chinese FDI is now not automatic.

It is on a case-by-case basis. At one time, there were some 300 or 400 pending applications. That means, there is interest from the Chinese side, whether it's coming from Hong Kong or directly from mainland China.

BYD wanted to set up a car factory here. So whether it's investment linkage, trade or commerce, cultural, university-to- university linkages, or exchange of scholars, India should invest much more in understanding Chinese culture, economy, society, history. Our understanding and scholarship of China is very, very pathetically low.

Shweta Punj: I want to also get your sense on your outlook for the third and the fourth quarters and for FY26. You mentioned that there are a lot of uncertainties at play here, but looking at the situation, do you see a pickup in demand? Do you see a pickup in investments?

Ajit Ranade: First of all, straightaway, I should say I'm bullish about the software sector. I think we should be able to reach $250 billion of software services exports. I'm bullish about the fact that the GCCs
(Global Capability Centers) are increasing their presence in India. They might go up to 3,000 now, and those are very high value-added services in R&D. It's not just coding, it's much higher end work. I'm bullish about the fact that inward remittances keep climbing up. We are the highest in the world by far – $120 to 130 billion. So those are the positives.

I'm concerned about the fact wages are not growing fast enough. On the one hand, profits-- if you look at it, compare profits to wages, the combined profit growth of all the listed companies on the stock exchanges has been something like 30-45 percent for 2-3 years. But wage growth has been barely 1 or 2 percent. Why is there such a big divergence? How can we ensure that wage growth is also healthy? We can't, of course, force it, we need to find out what does it take.

I'm very concerned that we are not getting ready for artificial intelligence (AI). Our human capital investment, our investment in skilling, training, education, universities is really very low… forget about China, its low compared to even world averages. The percentage of GDP spending on education and health care is low. These are all social sector spending, and it's becoming especially important in the age of AI. AI is pervading all sectors.

It's not just in software, it's in industry, it's everywhere … be it entertainment, banking, financial services. I don't know how much talent we are able to produce in AI. Indian talent is doing very well in American companies or in American research, but we need to grow our own, have a strong foundation.

Our startup economy needs a leg-up, because while it's great to talk about it, at the ground level, the nitty-gritty level, if GST registration is taking me three months, there's something we need to rectify.

So, generally, I feel we're going to inch up from here. This year, as I said, 6.4 is what I think we'll come up with, but next year will be slightly higher. Because of the global tailwinds, as I said, Germany is in recession, China is in a slowdown. So in that context, I don't think we can aim for 6.5 or 6.8 in FY-26.

Shweta Punj: And you're calling it a cyclical slowdown, a 6.5 percent growth is a cyclical slowdown.

Ajit Ranade: Well, no, I think there is a cyclical element, but India is still in a structural story.

Shweta Punj: Sorry, yes, structural story. Yes, absolutely. Okay, very quickly, what, according to you, would be a good budget? What are the three imperatives for Sitharaman and for the Modi government to address in this budget?

Ajit Ranade: It's not an easy exercise, you know. First of all, India is complex enough to come out with a Union budget, which is about 15- 18 percent of GDP spending in one go. Imagine the finance minister getting up in Parliament and saying, ‘Ladies and gentlemen, I'm going to spend one-seventh of the GDP in one go.’ I mean, that's the kind of huge scale. So, I feel we cannot ignore fiscal limits. So, let's not be too blase about it. Let's just forget about the fiscal limits and keep expanding. Expansionary, you know, pumping growth through expansionary fiscal policy is simply not sustainable. It's time we recognise the fiscal limits. I think our tax system needs a major overhaul. It's a scandal. I feel that individual income tax rates are lower than corporate income tax rates.

That should not be the situation. I feel our tax slabs are very weird because, no doubt, our minimum income tax starts at the income level of something like Rs 7 lakh. This is like 3-4 times our per-capita income. You know, it's like 300 percent. No country in the world gives you that kind of tax exemption. But very quickly, after Rs 7 lakh, it goes to 40 percent. So seven to 10, 10 to 15...that's a very skewed situation. On the one hand, we have very high exemption limits. On the other hand, we have very high tax rates immediately at Rs 15 lakh.

So some direct tax reform is radically required. We should have much larger slabs. We can't put the genie back in the bottle. We can't say that you should start paying income tax. I mean, ideally, I would have been happy if people start paying income tax at the per-capita income of Rs 2-2.5 lakh pay 5 percent or 3 percent. And then gradually have a large, large slab. I don't think that is likely. We also should do serious GST reforms. I know it's beyond the Union budget, but we have too many slabs and too high GST tax burden. We should aim for a single rate of 12 percent. We need to just simplify everything. This solid popcorn with sweet popcorn. I mean, there's just too many, too many complications.

Shweta Punj: Okay. So simplification of GST stick to fiscal consolidation.

Dr. Ajit Ranade: Just one more thing. As I said, enhancement of education, skilling, training, and human capital is very, very important. Running higher education is costly. We should grant autonomy to universities and training institutes. They should be able to set their own fee. But then, to make education affordable, we have to be very liberal with student loans.

Shweta Punj: Absolutely.

Ajit Ranade: This is something developed countries do. We should embrace financing of higher education through student loans in a big way. Maybe the Union budget can do something about it.

Shweta Punj: Okay. One question I wanted to ask you is about structural slowdown. How much of that would, you say, an outcome of the monetary policy we've followed? Going forward, do you think it will help if we see a slightly eased-up monetary policy to just get people to open up their purse strings some more?    Ajit Ranade: Well, I always like to remind people that the primary function of the Reserve Bank of India (RBI) is to protect the value of your money, the money in your pocket and in your bank. All of us have our own savings and the RBI's main task is to protect its value, which is to say that you have to keep inflation low and stable. Now, the challenge is that it's not only inflationary, but inflationary expectations. So, therefore, I feel that the RBI should not have to pay such a big price. You know, they're held accountable for unemployment, output, credit flow, financial stability, bank profitability and all that. Those are all secondary.

Of course, they have to take care of the exchange rate stability and all that. It's complex enough. I wouldn't want to say that monetary policy is an impediment or a structural hindrance to GDP growth. So long as the growth process requires adequate credit, it should be forthcoming. The price of credit is that interest rates should be reasonable. I don't think interest rates are what is keeping India's growth low.

I keep saying that growth is thwarted by things like lack of demand or lack of profitability or maybe, stagnant wages, or employment not growing vigorously or even ease-of-doing business or producers and entrepreneurs not showing animal spirits, in terms of business confidence.

Those are much more important than interest rates. Of course, interest rates are important to sectors like real estate and housing. But I don't think they are the number one reason why growth is slowing down.

Shweta Punj: Last question. We've had, in the past, spoken a lot about this minimum government and maximum governance. This was a big promise of the Modi government. We've seen some of the regulatory cholesterol being cut down in terms of, you know, old laws being done away with and so on. However, there has not been much progress. So, in the first term of the Modi government, we saw a lot of action on that front. There was a lot of talk about asset monetisation and so on. And then we saw a slowdown on that front. So, do you think now is a good time for the government to pick on that, reduce the number of ministries, you know, and just surge forward with this big promise that they had come to power with?    Ajit Ranade: Absolutely. I think very, very important. Of course, you're asking me a political question. In Maharashtra, we recently saw that the cabinet announcement was delayed by more than a month because of ministry allocation. If that was not enough, after the ministries were allocated, there was a big scramble for something which is peculiar to Maharashtra -- Palak Mantri or Guardian Ministers for each of the districts. So imagine, you know, jumbo cabinets. I'm reminded that, in Sri Lanka, at one time, the ruling party had something like, let's say, 120 members and 100 of them were in the cabinet because they had to give ministries to everyone.

So, the Union government should definitely look at seriously trimming not just ministries, but also spending. There are a lot of schemes which have overlaps. There are a lot of schemes which we need to look at, in terms of the efficiency and quality of spending. We can get the same outcome by a more efficient way than trimming down. We have to look at, you know, many of the subsidies.

For example, the National Food Security Act says that we have been giving 10 -18 million people 5 kg of rice, wheat or coarse cereal for the last five years and we have extended it for another three or four years.

Is that about a percentage of the GDP or two? We need to look at it. Is there a more efficient, more cost efficient way of doing this, of ensuring this? And then, we need to look at the whole business of government being in the business of procurement, storage and distribution of 60-70 million tonnes. Why? We are trying to ensure the objectives of price stability and food security and adequate returns to the farmer.

These are three different objectives and you want to achieve them through just one instrument called the PDS. Is there not a more efficient way? You have this bloated bureaucracy of the Food Corporation of India. Is there not a better, easier, more efficient way? Sometimes the government itself, the people in government develop entrenched interests. So they themselves may not have that much interest in downsizing. It's a very hard reform. I think this is where our political leadership and prime minister should expend their political capital in making these hard decisions.

They're not hard because ultimately they'll pay off. Ultimately, we have to decrease this. The Indian mindset that, you know, Mai-baap Sarkar, freebies, what we can give, get more free from the government? It is said that Rajiv Gandhi once said that apparently out of every Rs 100 the government spends, only Rs 15 reaches the poor. But when the Revdi comes or during elections when cash is distributed, the full Rs 100 goes to the voter. That's not something we need. We don't want to encourage this kind of thinking. I think this is an important principle and philosophy about maximum governance and minimum government. We really need to not lose sight of that big goal.

Shweta Punj: Absolutely, Dr. Ranade. Thank you so much for joining us and breaking down a very complicated economy like India so simply. Like you mentioned, we need more jobs and more high-paying jobs. We need more people to move out of agriculture. Just one more question, Manufacturing or services? What are you betting on to drive India's prosperity?    Ajit Ranade: It's got to be manufacturing. Services are doing well. Services export is doing well. It's got to be manufacturing. We have to increase the share of manufacturing from 15-17 percent to at least 20-22 percent. It's got to be manufacturing.