Full transcript of Ruchir Sharma's exclusive interview to Network18

Yes, because I'd say that in terms of, if I can say so, that one, that this is a revisionist history of capitalism, that it really traces the origin of capitalism from how it began in America. It began on the premise of limited government, and that was the case for about 200 years or so. It was a case of very limited government. In fact, government spending as a share of GDP, if you look at the line, was about 3% of GDP right up until the 1920s. Then after that, from the 1920s onwards, following the Great Depression, you've seen the role of government steadily expand in America, across the Western world, in society. I make the point here that the form of capitalism you have today is very different from what the founders had in mind.

It's a very distorted form of capitalism. In fact, leaders such as Bernie Sanders, they call it now socialism for the rich. I have some sympathy for that argument, in fact, which is that I think it's socialized risk, that risk has been socialized across the Western system, and we'll speak about that in detail. So, the reason for writing this is really that, in a way, this is still an ode to capitalism, but it's addressing the problem today that why are so many people across the world, particularly in places like America, which are seen as the beacon of capitalism, why have so many people today lost hope in capitalism to the extent where a majority of young Americans today say they would rather have socialism than have capitalism. So, this is a huge change that we have seen, and something for us in India, too, to learn and observe, because we are moving towards a much more capitalist system.

We have been doing so since the 1980s, when we were a heavily socialist country. We are moving in that direction. So, what is it that we can also learn from what's happened in the West and the disillusionment that the West today is seeing with capitalism?

Z: I do want to ask you the phrase limited government, which is, of course, popularized by Reagan and then by Thatcher. You have a sort of counterintuitive argument in your book saying that when Reagan and Thatcher said limited government, actually, if you look at the data, even amongst conservative governments, whether in the U.S. or in the U.K., government spending actually went up. Can you explain that a bit more? Because it sort of fundamentally questions the whole concept of limited government.

Exactly. So, I think that a lot of, there's this broad sense out there that the Reagan-Thatcher era marked the start of some sort of a neoliberal era. The word neoliberal has become a pejorative term. Just like in India for a while, as you remember, the word secular became pejorative, today in the Western debates, the word neoliberal is something which has become a pejorative term. That is associated with this era which began with Reagan and Thatcher of so-called markets being on the ascendant, free markets going on the ascendant. In some aspects that was true, which is that you had the role of financial markets increased a lot. You had much greater trade liberalization. You had globalization. You had countries like China, India adopting a much more market-oriented system.

So that was very much part of the so-called neoliberal agenda. But there's one big myth out there, that most people think that this neoliberal agenda also included the retreat of government, you know, that the government sort of stepped back and the private sector took on a much greater role. That's the myth I've tried to bust in this book, that if you really look at what happened under Reagan, for example, government spending as a share of GDP slowed down a bit but kept going up. Government spending as a share of GDP, as I said, over the last 100 years, the broad trend is that it's been a straight line up. It's gone from 3% of GDP a century ago to places like America where it is now 40% of GDP. In Europe it's even worse in places like France. It's approaching 60% of GDP, 60% of the GDP in places like France today can be accounted for by government spending. This is a huge change that's taken place out there.

The second thing, as I explain in the book, that the role of government is not just about spending as a share of GDP, it's got to do with so many other metrics like the culture of bailouts, the amount of regulation that the government puts there, the micromanagement of the business cycle where the government sort of, you know, always micromanaging like the business cycle, the role of the Fed, which is, you know, like a quasi-government institution. So, it's about this suite of government habits and what's happened out there. So, it's a revisionist history of capitalism by busting some of these myths that under Reagan and all we had limited government, and then also about explaining that it's not just about government spending, but it's a suite of government habits today which has become such a part of the economic debate and a part of the society.

Then look as to what damage this is causing and what damage it's already caused and prospectively what's the damage that this can cause further in the years ahead.

B: So Ruchir, if I may jump in. So, you've obviously talked about the fact that the government had a limited role in the running of the economy till, let's say, in the 1920s, you know, in the early days of American capitalism, or pretty much since the founding of the American…

Yes, for 200 years.

B: For 200 years?

Yes.

B: And then there was a softening of capitalism, if one put it that way, with the New Deal.

Yes.

B: I mean with the whole slew of social security, you know, legislation in the U.S. and in other parts of the world also. Then the regulatory state, as it has been called, or the administrative state, to use a, pick up a modern term, used by Trump and others, sort of grew from strength to strength. Now, that also includes a culture of bailouts, because the way you do bailouts to prevent, you know, to save jobs, to prevent sort of wider contingent effects. Now, are you saying, but at a foundational level, in terms of the theory of your book, are you saying the softening of capitalism is the wrong thing?

Right. So, what I say in the book is that the balance has been lost. In, 1920s that was very raw form of capitalism, almost a Dickenian form of capitalism, with no welfare state and, like, if you were out of a job, you were just out on the streets, right. So that was a very raw form of capitalism. Today what we have is an overprotective form of capitalism, right. So my point in the book is that we need some sort of a balance to be restored, because what we have today is leading to a lot of distorted outcomes, that when you have a culture of constant bailouts, a culture of constant stimulus, you're keeping alive a lot of deadwood, and you're preventing new entrants from coming at the same pace as they would, because if the deadwood is still there in the system, then you're crowding out a lot of new people from coming in.

And why is it that so many people in places like America and the West today, so many young people are disillusioned with the system, partly because they feel there's an inequality of opportunity, that the opportunity is being shrunk, because when you bail out or you have too much regulation, who are you benefiting? I think that's a very key point. You're benefiting the incumbents. You're benefiting the entrenched, because they're the ones who get to benefit by being bailed out, or like regulation, I think this is a very important point, that when you have a lot of regulation which is done, the people who benefit from it are the incumbents in two ways. One, the cost today of dealing with regulation has gone up considerably. Like I know it from personal experience, that in America if you want to set up a new fund today as an example, the cost over the last 20 years has gone up 10 times, because of the amount of administrative, legal, compliance, other things that you have to follow. So that means that it's very difficult for a small person to survive under that environment, and so therefore they get bigger.

The second thing is that when you have too much regulation, it's much easier for them to have regulatory capture, that they're the ones in Washington and other capital cities, and they're lobbying very hard. So, all these things, I think, are something which are undermining in terms of capitalism, the regulatory state, the bailout state, and so therefore that's what my point is, which is that this has been lost. That one of the very fascinating pieces of research in the book for me, because often when you're writing, you're researching, you're finding stuff that you did not even know beforehand, was that the culture of bailouts in America did not exist until the 1980s. The concept that the government should be bailing out private sector companies in America was considered heretical, that we don't do this. This is America. This is not what it's done.

Then from the 1970s onwards, the first attempts are made, and there's a document in the book that here in the middle of the big Reagan revolution, free market revolution, the first big bailout of a financial institution happens in 1984 of Continental Illinois. Once you set that precedent, then it just gets larger and larger with each crisis, because you want to prevent it, you think you have that tool, and then the distortions that causes. That's what I try and illustrate in the book.

So, it's about finding the balance back again, not going back to that old laissez-faire form of capitalism which leads to these Dicksonian outcomes, but something where the balance is restored. I'm saying that today we are completely out of balance.

B: So just to follow up on that, so when you talk about, I mean the point about excess regulation is well taken. Many would argue that even India has lots of excess regulation about setting up funds and so on and so forth. Anyway, but just coming to regulations for a moment, I think you mentioned Continental Illinois which happened at the height of the Reagan revolution. There was the savings and loan industry which went bust, that was under President Bush. I think there was a bailout of Chrysler sometime in the 1970s, early 80s, which was the first bailout. But if you come to the big bailout, which is the 2008, now of course it has been criticized, but can it not be argued that it was a banking contagion to prevent a banking crisis and overall the situation which prevailed in America in September 2018 was when you went to an ATM, would you be able to withdraw cash or not. Now one can always criticize it in retrospect, but from a policy maker's point of view, would you really say that was something wrong? Is that something, is that a point that you make?

No, I mean I make the point in the book that if you have a severe crisis, there is a role for the government, whether it's got to do with bailouts, whether it's got to do with welfare spending.

B: Whether Silicon Valley Bank should have been bailed out or not is a very open question.

Exactly, that's my point. That's my point, which is the fact that once you set a precedent that now everything has become too small to fail. So, we went from too big to fail in 2008, where now you have Silicon Valley Bank and it's not just that. Once you had them being bailed out, then you have the next line of people, people in the commercial real estate industry saying we also need a bailout if something goes wrong. Once that's there, then the whole risk pricing gets mispriced, right, because if I'm there and I know that if something goes really wrong, the government's there to bail me out.

It's like, you know, like your incentive system shifts. So I agree that we need bailouts when things get really bad. But like what happened post-2008 is quite incredible, because then you had the policies where the Fed kept on doing quantitative easing. We kept, you know, keep on pouring more money in the system until growth lifts off. We will pump up asset prices to try and, you know, like boost consumption of the average person. But in doing so, then you're also worsening problems such as income inequality, wealth inequality. Remember that there's a lot of resentment, like in 2008, for example, when you had the bailouts. The fact that you had the bailouts with no consequences virtually for the people who were bailed out, I think leads to a lot of resentment. Then if you bail out the very large ones, there are so many small community banks in America which still went bust, you know, when that happened.

So, the average person feels that, okay, who is the system really working for? That you're bailing those guys out. What about me? Where do you draw the line on that? And that's what leads to the resentment against the system, like in terms of that. So that, but you learn no lesson from it. When Silicon Valley Bank happens, you rush immediately to bail it out. And it just gets worse and worse, because even look at the Fed's role. A couple of weeks ago, the markets had a big decline on one Monday. Immediately that happened, you had people out on television saying, well, the Fed needs to slash interest rates right away. An intermittent cut needs to happen. Why? The market fell 4% one day, and that happens. And here we are today. The market's higher than where it was two, three weeks ago, and we're still looking for the Fed to cut interest rates.

B: But that's because they now expect the Fed will cut rates.

That's right. So, I think that's the reaction function which has changed, that we have become so sensitive that the downside will be socialized, that we are there to protect you. On the upside, you know, like it's all capital, capitalism. So, the upside, we have capitalism. On the downside, we have socialism. I think it's this asymmetry which is what I point out in the book. I'm doing it from after having been both an outsider and an insider in the system in a way. I'm an outsider because I came from a middle-class family in India, went to America, saw what capitalism is all about, and benefited from it and prospered from it, admittedly. But having seen it from the inside, that when you have so much free money which you keep throwing at the problem, and how people on Wall Street and the finances become so rich on the back of that free money, that's what inspired me to write a book like this, that, hey, this is not what capitalism is meant to be. And when you do such policies, it leads to widespread disillusionment amongst the broader swaths of the public. I want to sort of tell people that, hey, this is not capitalism, this is not what the founders had in mind.

Z: I do want to ask you in the context of India. You had a right, right-of-centre government for the last 10 years. But even the Modi government, one of their biggest flagship schemes is about free ration, free food for 80 crore people. It is still as much a welfare state as it used to be pre-1991. Why is it that in India, and again, you can link it to elections, Mr. Vajpayee lost elections despite having 8% growth, Mr. Modi in 2019 won with 4% growth. So this whole link between, oh, if you have economic prosperity, if you have a higher GDP number, it automatically means those politicians are popular, those incumbents return to power, that has never been true in the Indian context.

Absolutely correct. So in fact, that's a separate piece of research that I've done, and I found it very fascinating that when I was writing my previous book, I had done this research, which is in India, there have been about 30 odd instances when a chief minister or a prime minister has delivered economic growth of 8% or more during their term. And the probability of them getting re-elected on the back of doing that is about 50%.

Z: So half of them lost.

Half of them lost, half of them won, which is slightly better than the ordinary probability. The ordinary probability historically at least used to be two-thirds or so, that two-thirds of governments typically lost elections in India. It's changed a bit of late, but roughly that's been the average. So you're completely correct that in India, the connection between economic growth and electoral outcomes is rather sort of tenuous, right? In India, the connection which works all the time is inflation, that no government's ever won an election like in India when inflation's been high. That's there.

Now under the Modi government, in terms of that, to give credit for it, they have shifted the focus somewhat, which is that the problem under the UPA government, particularly the second UPA government was that it was all about welfare without focusing on what's happening to economic growth, who's paying for it, and we ended up with these severe imbalances by 2012-2013, which the country had to deal with. Under the Modi government, at least you've seen some correction in that imbalance, which is that they are still doing welfare spending in terms of that, but it's not to the extent that was happening before. There's been more focus on building out infrastructure.

So that balance has shifted under this government, especially in the last few years, and I think that is a sensible shift in balance because you cannot build a welfare state too large prematurely. Now, as I say to people that we love to talk about China, and show the example of China, what a great development story China was, etc., and all that. But people don't understand about how capitalism worked in China. I saw that firsthand in China, how capitalism worked. In China, they decided we are not going to have a welfare state until, you know, at least we reach a particular per capita income level. So it was ruthless capitalism in China. Here is a communist country, but the actual economic policies they followed for much of the 1980s, 90s, 2000s, was a raw capitalism, that no welfare state, because if somebody loses their job, they got to move to the right areas to do that. So if you look at China, everybody moved towards the East Coast, where you had the opportunities, the jobs and stuff. As I say, one of the most fascinating things about China was the fact that in the 1990s, they fired nearly 100 million people in the public sector to downsize their government. They started, of course, from a very controlling state. Can you imagine, you know, what they did?

So if we want to achieve 9%, 10% type economic growth, it's those kind of policies that we will have to follow. But there's no way any government in India is going to ever take that risk, because now there are, like, imaginative ways that economists can speak about how to do it, which is that you spend nine, you know, like, why don't we spend privatize and use that to distribute that money to the people, make it popular, you can do all that. But I'm dealing with the reality of India.

But just coming back to your point, which is that under the current government, the balance has shifted in terms of it. So I think that the macro-management, if you look at the accounts and stuff like that, has been reasonable. Even inflation has been kept relatively under control. One of the biggest mistakes in the UPA-II government that I would speak about back then was that they let inflation really get out of control. So from that regard, I think that we are in better shape, that capitalism generally has been moving in the right direction in India, even though there's a lot more which can be done. As I argue, like, privatization is now dead in this country again, right, in terms of that. No one talks about that in any big way. But at least the balance has been restored a bit.

But the reality we have to deal with in India is that we can never be a China in terms of its miracle growth rate areas, because we will always be spending some on welfare rather than directing our effort entirely on building roads, bridges, infrastructure, which is what China did with whatever public money they had for the first 30 or even 40 years of their development process.

B: So would you say that the government not going in for an over large stimulus after the pandemic, which many other governments, notably the US, did, and also its emphasis on the fiscal deficit as it's spending more on infrastructure than in a relative sense, that it is more or less on the correct track?

Yes, I'd say that from a macroeconomic management point, and I said so then, because like in terms of that, as you know, that in terms of as far as my-- I have a very different political view of this government and a very different economic view of this government, which is that from an economic view, like standpoint, the macro management, which this government did, in terms of it, even after the, like in 2020, I was very publicly, like saying that the government should not do too much stimulus, partly because we are not the United States where we have the world's reserve currency, and we think we can write these blank checks and get away with it. And like those emerging markets, which did overstimulate, did get in trouble.

And even America got in trouble, as you know, that even today, the Biden administration is suffering for the fact that it had this massive surge in inflation, a much higher surge in inflation than India had, like in the pandemic. And they're paying the consequences that Kamala Harris in her campaign now, in fact, is acting almost as if, you know, like she's an anti-inflation person, even though she was part of the Biden administration, which was raised up. So generally, the macroeconomic management, I would say, and you go by the numbers of India, is reasonably good.

I have other issues on the, you know, like in terms of that, is it still easy for the average entrepreneur to do business in India? I think that's still very difficult. You know, why are still so many people looking to set base up in Dubai and Singapore? Why not here? So the ground level, there's still a lot which needs to be done. If I would be very ambitious, I'd say, oh, we should be doing more privatization and stuff. But the broad answer to the question is that from a pure macroeconomic management standpoint, India has done a reasonably good job over the last five years.

B: Why are they setting up base in Dubai and Singapore?

No, I think that it's still very difficult for, you know, like I think that one of the big sort of criticisms I've had of the government is the fact that, is that the regulatory state is out of control. The investigative agencies are out of control. So which is the fact that it is still a sense of fear. You know, the average person is still-- the average entrepreneur is still dealing with a lot of that. So like, how do you make that reasonable? I've said this about rules and regulations that nobody wants to break them voluntarily. But in India's case, often rules and regulations are made, you know, where if you don't break them, you can get nothing done. But then the government then ends up having a stick to beat you with at any point in time.

In China's case, it was called the original sin for a while. You know, which is the fact that the government sort of, you know, always has that if you're doing a business in India, like the rules and regulations are made in such a way where if you don't break it, often it's very difficult to do it unless you're a pure export oriented tech firm or something like that. If you're doing something on the ground, it's difficult. The moment you do that, obviously the government's going to have a dossier on you and you can use that dossier strategically whenever you need to. So I think that that creates a sense of fear amongst the average entrepreneurs and staff. And so I really feel we should look at that more closely, that why not, you know, try and keep the best talent within our country? Why not, you know, like make sure that why is domestic private investment not picked up even more? Why are we still relying so much on the government to push up investment? I think those are issues we need to look at.

So we have to split it between the macro and the micro. Macro, I'd say like, you know, pretty good in terms of what's done. Micro, a lot more needs to be done. And especially if you want to get break out of the 6% growth rate, which we see seems to have become now a new steady state equilibrium, if I can say so.

Z: Ruchir, I think the last time we met was in May, April, May in Hyderabad.

Yes.

Z: And you were, of course, observing the Indian elections and I was covering the elections as well. And you were pretty certain at that time that you were not seeing any kind of wave. I think you even wrote a piece saying the only wave around is the heat wave. What is it that you saw which then has been now reaffirmed with this mandate? It's a 240 mandate and not a 300 or a 350 or even a 400 mandate.

Yeah. So as you know, that I may travel the world, but the week that I'm most passionate about, the week that means the most to me is the one week of the election trips I do in India. So this was our 31st election trip where we met in Hyderabad, you know, like in like around mid-May, early May, in fact, is when we met.  And we had taken this journey where we sort of drove about 2000 kilometers, starting from Vijayawada, you know, close to the eastern seaboard, all the way up to Mumbai. And we stopped along the way and practically covered four states along the way.

I think that the sentiment that we picked up on these travels and I'd say that even more so in places like Maharashtra and stuff, is that there was this yearning or desire in India that this thing has become too one-sided. The narratives become too one-sided. The whole thing has become too one-sided. So as I said, when I wrote in the book, like in my piece also, which you're referring to, that there was no great discernible anti-BJP feeling, you know, like even for Modi and all, there was no discernible feeling. I think a lot of people took, you know, like who were on the upside in terms of what he would get, were more focused on that, which is that, you know, that is that there's no discernible anti-Modi feeling. And he's been able to pretty much say what he wants and get what he wants before that. Right. Because that was how the state elections had played out and stuff.

So that was the feeling that's concerned. I think that the story which we managed to pick up on our travels and possibly others missed is the fact is feeling that outside of that base, which was pretty stable, there were lots of people who were feeling that this has become too one-sided. We need an opposition in this country. And this has always been my sort of feeling about India that a democratic fibre is very strong. We don't like, you know, one-sided battles for too long. There's a sort of natural tendency in us to root for the underdog in terms of that. I think we’re naturally democratic nation. And so there was a feeling that we need the other side to come up. So I think that what we had in state after state is a consolidation of the vote which happened, where like the people wanted to back whoever was the winner or who could be the winner against this very strong force on the other side.

So I think that that's the very key thing, message that we like observed. And there was also a bit of an urban-rural divide, which is that in the urban side, this idea of India sort of, you know, doing really well outside, it's doing really well and all that. And that pride in nationalism is there. In rural areas, I feel that has much less of an echo. So I think those are some of the trends that we picked up while we were travelling. I think that in terms of, so I was a bit surprised that why is the narrative the other way? I think that that's the problem also, I think, that which this government has to sort of be a bit careful about, which is that it's so focused on the narrative and making sure that everyone buys into that narrative, that sometimes you lose connection with the ground reality, you know, when that happens, when people are almost scared to go and tell them that, hey, this is not the reality of what's going on. You know, there's something else that we're picking up on the ground. There's almost a fear for expressing that, because even when I wrote those pieces, there was a lot of pushback.

I'll never forget that time that I'd gone back to New York and the exit polls came out. In fact, I was also a bit sort of, you know, like people told me about that, or people going on television and almost attacking personally, me and groups like ours, saying that all these guys come here, live in these elite bubbles and do these trips and don't understand what's happening in real India, you know. So it's like that level of overconfidence which crept in. I think that, you know, like all those were points for us. And as I said, that some of it is luck as well. We've done 31 election trips. There are times when we have missed trains as well. But after having done so many election trips, I guess experience at some level matters.

Z: But I do want to ask you, instead of May, if you if you had taken that road trip in January when the Ram Mandir inauguration happened and, you know, Prime Minister was leading the religious ceremonies, it was like he could do no wrong. And this whole Hindutva experiment, it was sort of a culmination of that. But the fact that an opposition sort of keeps pointing to this, that the BJP could not even win in the Ayodhya seat. What do you make of that? Is it that this Hindutva experiment has reached its limits and people are now going back to bread and butter issues, livelihood issues, etc.? Or what is your understanding of why the BJP, despite the high point that they reached on January 22nd, both in Mr. Modi's image and this Hindutva project, they were not able to convert that into election gains?

Yes, but I also feel that there's a certain level of fatigue which sets in like the country, both with leaders and also to do with the issues, right? It's like that old line we used to have that how long can you keep running to the newsroom with the same breaking news, right? Which is that, okay you can play it once, you can play it twice. But beyond that, you know, like time, people are like, okay what else? Right. So there was a time when I think that some people felt and make no mistake, there's still a very strong Hindutva constituency, but there's a time when people felt that we needed a corrective course after what they felt had been a long period of appeasement. And now that you have had a much more sort of, you know, assertive Hindutva government in power, I think that the feeling that you need even more of that, there are limits to that, there are diminishing returns to that narrative, which is that, okay, you had this feeling of very strong appeasement and something needs to be done to counter it, you've done it, now let's move on to the next issue. You just can't keep on going back with the same issue.

The other thing which I've observed is that generally around the world, and I've seen this repeatedly, in fact, and I wrote a piece about this, in fact, when Merkel left office in 2021, it is very rare for leaders to remain popular after 10 years. Even in India's case, if you look at the state leaders and stuff, after 10 years, it gets really difficult to remain popular. I think that you're seeing that even at a state level, I mean, you know, like even in places like Bengal and stuff like that, I think you're seeing signs of that, you know, like now, Bengal is a state which generally gives the leaders a very long rope, because in terms of the CPI, it was there forever, but even Nitish Kumar, etc. But I'd say generally the trend, and this is not just about Modi, is very difficult for leaders around the world to remain popular after 10 years. In fact, in democratically elected countries, you can almost not find any leader who after 10 years left office on a high or was popular.

Merkel, so when I wrote that piece, I remember, was a bit of an exception. So it's very difficult. So I think there's a natural fatigue element with both the issue and the leader which has set in. After the election, in fact, I've only seen that momentum gather further is the reading that I have.

B: That's it. In fact, Naveen Patnaik lost also, although after much more than 10 years.

Exactly. And I'm saying generally. I mean, these are templates, whether it's 10, but I'm saying that the number of leaders who remain popular after 10 years around the world, especially national, state, maybe even this thing, generally, the number is extremely low. There'll always be exceptions. There's no 100% rule out there. But I'd say that-- and even if you look at the stock market, it's very interesting. I've done this study, but India has already defined that in some way, that the longer a leader remains in power, at least from a pure that factor, generally, the stock market returns tend to also tail off. Even in America, it's incredible that we're having elections. There's a huge gap between stock market returns in the first term of a leader and the second term of a leader. So these are general rules, and there'll always be exceptions. And in some regards, you can argue India's already defied that.

B: So just to go from one point with Ruchir made in the previous question was bread and butter issues. Now, one of the issues that clearly emerged even during the election campaign and certainly afterwards to explain the fact that the BJP ended up with 240 rather than a 300 plus, a sweeping victory, as had been projected, is the problem of widespread underemployment. That is, you know, we obviously had a stock market boom. We are still having one now. And there's a lot of celebration, you know, in the business dailies and in the business sites and channels about the number of SIP accounts going up and, you know, things like that. But it's also clear that's only affecting maybe 20 million, 30 million people, right?

But 500 million, 600 million people are not affected by the stock market boom. And there is a need really to create employment. There is, if you go out to smaller towns, there are lots of people who have smartphones, but who don't have any discernible jobs. So what can India, and that's could have been, I think that showed up in the election results to some extent or may have shown up in the election. What can India do to crack this? How can it create employment? I mean, can it take, I mean, kind of the labour-intensive employment of the kind that China created, textiles, you know, leather, furniture. Is that a route which is available to India any longer?

Well, it's more limited, as you know, because of deglobalization. But certainly, I feel that India can do a lot more because, like, why should manufacturing as a share of our economy still remain at the level it currently is? You know, why can't that go up? Now, I know there are, you know, in terms of economics moves on. So, like the digitization, the services sector, there are new routes opening up as well. But I agree that manufacturing, and this goes back to the point earlier made that it's still very difficult for the average entrepreneur in this country to do business on the ground. And so we need a lot more focus on what can be done for manufacturing, because manufacturing is not just about cheap wages and cheap currency. It's about the whole ecosystem. It's the infrastructure, which is, I mean, out there for that.

So, manufacturing is still the traditional old way to do that. The path is more limited, but even like in India, the amount that we're getting from a China plus one is still small compared to what, let's say, Vietnam is getting as a share of its economy. You know, why is FDI in India still, now, of course, the net number is even below 1% of GDP. China was getting 3 to 4% of GDP, Vietnam is getting 3 to 4% of GDP. So, there's so much more that we can do, like, out there. And I think that that's the sort of message even I hope from the election as well, that never get complacent. There's always stuff which you can do more, and like, hopefully, the government takes the message from that as well. But I'd say that it's both manufacturing and services in terms of what can be done.

But remember, Bodhi, that these are all economic debates. The other thing in India which I've always said is that there's too much focus on the centre. We are, at the end of it, a truly federal system. There's a lot that state governments can do. And I think that this is where, you know, like, Mr. Modi now should start thinking about his legacy, rather than the daily tackling of what's going on, that what's the legacy. And one thing I wish that he'd go back to is his experience as Chief Minister of Gujarat, that he would lament at that point in time, that why don't, you know, that, like, feeling oppressed almost by the centre of too much centralization, that we need more competitive federalism.

And so I wish that now he thinks along those terms, that, okay, how do we get more competitive federalism? How do we empower the states to do much more, rather than the sort of friction which always seems to emerge between the centre and the states? So I'd say that it's about empowering the states to do more, making it as local as possible, to sort out some of these issues, and to figure out why is it still a very tough country for me to do business on, that the regulatory maze and other things we're dealing with, and the investigative agencies is still something which is, I think, at the margin, something which we can solve. Other issues are, you know, much bigger, serious issues. We're facing deglobalization, you know, that manufacturing, it sort of has become more difficult around the world. But at least the issues which are under our control, I think there's a lot more we can do.

Z: You were talking about Mr. Modi's legacy, and obviously his third term now. But I want to talk about the other side, Rahul Gandhi. He's now in a constitutional post, he's leader of the opposition. How do you see his evolution? I mean, we don't have a concept of shadow prime minister in this country, but do you see him sort of having turned a new chapter, that people are viewing, in your travels that you had while you were covering the election, while you were observing the elections, are people viewing him differently than they used to ten years ago?

Yes, I think that the image has definitely undergone a big change. But I can't make out whether it's him, or whether it's just people just want something new. This goes back to my old point, you know, which is that India's got this way, which is the fact that it's a naturally democratic country, which is that when you're sort of getting fatigued with something, you almost begin to prop the other side up. And I think, that's what-- I remember that, you know, the signs of that came back, that, you know, signs back in 2019, I still remember that so vividly that the NDA had swept, the BJP had swept those elections. And nobody even bothered covering the state elections, which were held six months after that. And they threw up plenty of surprises everywhere.

And that, you know, when you thought the opposition was totally decimated, back then, and demoralized, but the people still wanted some, like, alternative to come up. I think similarly, what's happening in India today, if I can sort of say this, a general feeling that, you know, like, that we are now tired, we want something else to be propped up. So it's hard to, like, for me to separate currently, because having observed Rahul Gandhi over the years, we first met him in 2007, I remember back then, and I wrote about it in my book also that at that point in time, we were very underwhelmed as a group as well when we met him back in 2007. Because, you know, we didn't feel that he was a good listener. He was just sort of talking in like, in very academic terms, in aloof, distant terms and stuff like that. Seems like, you know, there's been a change with that, you know, in terms of what he's done.

But it's a general connect, which I think that people just want alternatives, like, the, I have to say, the single biggest poll, which shocked even me, in terms of, even though we expected these numbers, which came, as you pointed out, was the, like, one of the post poll surveys in Uttar Pradesh, which showed that today, more people would rather have Rahul Gandhi as Prime Minister, than they would have, like, Modi. I mean, I have to say, I've staggered and I can't still believe it or, like, internalize that. But that just tells you that when the mood shifts, and people want change, they're willing to prop up, like, whoever they think is the next best person there. And today, he is the only leader with a national footprint in a way, right? Because, I mean, in UP, I think Akhilesh is quite popular, I think in Bihar, Tejasvi is quite popular, but they don't have a national footprint. And in India, case we know, that there's never been a single instance of a state leader, on their own, having emerged.

It's different if you're already in the BJP or the Congress, and you emerge nationally. But there's never been a state leader who's been able to cross their borders. So Rahul, by the sheer persistence, if I give him marks for anything, for me, it'll be the fact that despite this incredible amount of negativity he's faced in politics, since he's, it's been exactly 20 years since he made his debut, that he's persisted with it. And I think that people are sort of, you know, saying that, okay, let's give somebody else a bit of a chance here. I think that's the dynamic which is playing out.

B: I do want to ask you, I mean, as we wind down to the last five minutes of this conversation, 2024 is a pretty significant year. I think there are elections in more than 50 countries around the world. It'll cap off with the US elections at the end of this year. What do you make of the state of the race as it is right now? Because there seemed a point when the assassination attempt happened on Trump, that this is it, he's got it locked in. Then Biden withdrew. And the surprising speed with which Kamala Harris was able to lock in all the delegates, get the entire party leadership and rank and file to sort of rally around her. Do you think America is ready for its first woman president? I mean, they had that moment eight years ago with Hillary Clinton. It was not to be. How do you see the state of the race right now?

Well, you know, I think that the race is extremely polarized. So in terms of these, if I can say, sort of like saying, use this word, these are media narratives, which is the fact that if you, you know, that things shift so that, but if you really look at the race, it's like plus minus two percentage points in the key battleground states. It's still very much within that. Reflection of that is the betting market, that if you look at the average today, like the polling averages of the betting market, they have, it's basically a coin toss, 50-50, right? Like 52% maybe for Kamala Harris now, 40, you know, like 8% for Trump. It's statistically insignificant in terms of what the gap is.

My suspicion is, this is the way it's going to be right up until early November, that they know that, that unless someone really implodes one way or the other, and even like with Biden, remember that until that debate happened, it seemed as if it was a very close race. And then all of a sudden you had a month where it appeared as if Trump was running away with it. And then now the counter narrative has come back from that position, but the betting market is still equally split.

So whereas in India's case, at least, like, you know, like closer to election, we got a sense that something different was going to happen in terms of what was projected. I doubt very much in America's case, with just over two months to go for this election or three months now, is something really going to change. This is a very polarized country. It's like, you know, you talk to people there, and like in America, it's, you know, almost pointless having dinner table conversations.

B: In America, the excitement could continue even after the elections, given what happened last time.

That's right.  So it's like a very sort of thing. But what I find shocking, and just going back to one of the themes in the book, I mean, if I can say so, is that there's almost a level of maybe complacency bordering on hubris, which is that no one seems to care about what's happening to the American deficit or the debt. The fact that both the leaders have come out with plans now, finally. The election was all about personality rather than policy. Now, finally, there's some policy discussion which has come. There is no discussion about the fact that America today is running a budget deficit of 6% of GDP in the middle of an economic recovery, and that this is set to only increase further if any of the spending plans of Kamala Harris or the tax cuts that Trump wants, you know, like are administered. You're already in uncharted territory for a peacetime deficit. We will be even more so. There's zero discussion of that.

So my suspicion is that that's really what's going to come to haunt whoever comes to power. That the fact that you've become so irresponsible and complacent that you think you can run whatever debt you want, whatever deficit you want, and the world is going to keep funding it.

B: Who's better for India, Trump or Harris?

I don't know, because I think that India has been able to manage this pretty well, which is that, you know, like the fact is that I think that we are the anti-China trade in a way, right? That China is the issue. As long as China is the issue, India sort of, you know, like is what's, like these things are all transactional. So India is what is, you know, like is who they want. So in terms of what it is. So I don't think that the election in terms of policy-wise, as in remember that even America, there's what happens in the Senate, what happens in the House also matters. We are focused on the top two out there, but those things matter.

So I don't think, I think in India's case, we have a natural advantage, which is that currently the West is all very anti-China and as long as we can tap into that. But I hope we can also tap into that commercially.

Z: All right. Ruchir Sharma, thank you very much for this fascinating conversation and good luck once again on this fascinating new book. Thank you very much for joining us.

Ruchir Sharma:

Enjoyed that. Thank you.