Madan Sabnavis, Chief Economist of CARE rating agency, gave an interview to Moneycontrol.
Three decades of economic reforms have ushered in a major transformation in the size and quality of the economy, said Madan Sabnavis, Chief Economist of CARE rating agency, in an interview with Moneycontrol on July 1.
While reforms have put the economy on the fast track and made it comparable to the world's developed countries in terms of quality, the trickle-down effects have worked in a limited manner, Sabnavis said.
"The poor have become less poor; the rich have become much richer with inequality getting exacerbated. Further, those at the bottom 10 percent of the population still lack dignified living and it is more people in the middle and higher levels on the low-income scale, who have moved up," Sabnavis said.
"This, unfortunately, is the result of market economics or economic Darwinism. The governments have worked to give freebies but not been able to provide a sustainable living for them," he added. Edited excerpts:
Q: How do you assess the change in the Indian economy in the last 30 years of economic reforms?
A: The 30 years of reforms has ushered in a major transformation in the size and quality of the economy, which is more than admirable. Considering that the phase before reforms was typified by scarcity, control, absence of variety, a repressed financial system and absence of competition both in domestic and global market, reforms have put the economy on the fast track and made it comparable to the developed countries in terms of quality.
Q: How have economic reforms touched individual lives?
A: Growth has been swifter and there has been an increase in per capita income. We have moved in the use of technology in almost every field and the economy is characterized by surpluses everywhere. The final tribute to the progress made is that India is the favourite destination for foreign investment both FDI (foreign direct investment) and FPI (foreign portfolio investment). The external account has become strong and we are now more worried about appreciation than depreciation.
Q: But, have the economic reforms really benefited India's poor?
A: It must be admitted that the trickle-down effects have worked in a limited manner and, overall, the poor have become less poor, the rich have become much richer with inequality getting exacerbated. Further, those at the bottom 10 percent of the population still do not have dignified living and it is more the people in the middle and higher levels on the low-income scale, who have moved up. This unfortunately is the result of market economics or economic Darwinism. The governments have worked to give freebies, but have not been able to provide a sustainable living for them.
Q: Which sector has benefitted the most?
A: I would tend to believe that the most radical changes have taken place in the financial sector; both banking and capital markets are extremely sophisticated and are the best in the world. Credit goes to RBI (Reserve Bank of India) and the SEBI (Securities and Exchange Board of India) for moving along a conservative path and bringing in the necessary best practices to avoid major backlashes. Hence, we have been able to withstand the global crises of 1997 and 2007 in a better way due to this calibrated approach. The ultimate testimony here is again borne by the World Bank’s Ease of Doing Business Index, where access to funds and transparency in markets are our strong points. The inflow of FPI and FDI supports this view again as a lot of FDI is in the financial sector as well.
Q: Which sector/sectors is yet to benefit despite the reform wave?
A: Reforms have been slow when it comes to agriculture as the concept of MSP (minimum support price) and subsidy has vitiated the market process and made farmers stick to conventional farming. The new farm laws, which are being opposed, should have been brought in a long time back to commercialize this sector and make it remunerative. Placating the intermediaries has been the priority and that is why we have seen a mixed bag here.
Q: What is the way out?
A: We have not had a second Green Revolution. We have not created infrastructure for logistics support or encouraged contract farming. That is the only way out. We have the advantage of being the largest producer of most crops and can easily get integrated into value chains at the global level. This has not been allowed or thought of, with too much politics coming into trade policy, use of surpluses and so on. Even futures trading, which had the potential to transform the sector, has been stymied to the point of being marginalized.
Q: Have we lost the momentum at some point?
A: I don’t think we have lost momentum. Ideally, reforms have to be gradual. But we had big bang reforms in the 1990s and in the first decade of this century. After that it is more a case of consolidation and dealing with contradictions. As a developing economy, these are bound to rise and hence issues like FRBM (fiscal responsibility and budget management) and disinvestment will always be volatile. The present government has been plugging in several gaps in power, telecom, roads etc, which is good. But things will only be incremental. Where we require big reforms is agriculture, which as mentioned above, is not easy given the firmly ingrained interests.
Q: Where do we need corrective actions?
A: The way ahead is to look at the lowest levels of income of society and create jobs for them. Providing freebies or NREGA (National Rural Employment Guarantee Act) is pointless as this does not give assurance of a dignified life. These are stop gap measures and frankly it is hard for any family to live on Rs 200 a day, i.e. Rs 6,000 a month with inflation being where it is today. This section must be a part of an all-round development programme and they should be given permanent employment just like the government employees. The challenge is for the Centre and states as they have to take this up seriously. We have not thought of this and an agency like NITI Ayog should have a five-year plan in place where we look at this section.