MC EXCLUSIVE India needs export push, FTAs to power growth beyond 7%: Sanjeev Sanyal

Sanjeev Sanyal, member, Prime Minister’s Economic Advisory Council.

The economy is expanding at 6.5 to 6.8 percent, largely powered by domestic drivers but for it to grow at 7 percent and above, an aggressive export push and timely conclusion of free trade agreements (FTAs) is vital, Sanjeev Sanyal, member of the Prime Minister’s Economic Advisory Council (PM-EAC), has said.

In an interview to Moneycontrol, Sanyal talked about India’s energy security strategy, growth drivers, trade partnerships and macroeconomic outlook. Edited excerpts of the interview:

Are we depending more on domestic consumption or the domestic engines to fuel growth?

Yes, the economy is currently growing somewhere in the range of 6.5- 6.8 percent and it is almost entirely driven by domestic drivers. This is very strong compared to the rest of the world but if we want to grow at 7 percent plus, we do need exports. While services exports are providing some momentum, we do need to get goods exports to do well as well. There are some segments like electronics that are doing well but for a wider momentum, the FTAs (free trade agreements) need to fall in place then we will be in a better position.

Do we need that 7 percent growth to become the third-largest economy?

We will get to the third largest economy whether we get the 7 percent growth or not because we are growing so much faster than other economies. We will reach there faster if we have 7 percent plus growth, a bit slower if we had 6.5 percent. By the way, we are already the world’s third largest in purchasing power parity terms.

With global trade uncertainty, are there concerns about exports, given our growth aspirations?

On our own steam, India can grow steadily at about 6.5 percent but if we want to grow at more than 7 percent then we need an environment where we can export aggressively. Unfortunately, the environment for exports has been quite unsettled now for the last several years and that is something we can't directly control. However, we are trying to work our way around this by doing a large number of bilateral FTAs. We have already seen FTAs with Australia, Japan and UAE, and more recently with the UK. We are now in advanced discussions with the European Union and the US.

The WTO world has broken down. What I think will happen in the medium term is that the world will end up as a network of bilateral trade deals. Most likely,  there will be two large centres of gravity — one will be the US and the other China. The rest of us will have to find some accommodation in this network. We have kept out of RCEP (Regional Comprehensive Economic Partnership) but, on the other hand, we are building these bilateral FTA relationships with a large number of countries.

What is your view of how much India can gain from the India-US bilateral trade agreement (BTA), which is in the works?

Those are negotiations happening but I am not in a position to comment on current status. Both sides are serious about it and quite a lot of ground has been covered already. There may be some sectors where there is a difference of stands but these will be negotiated to the satisfaction of both parties.

Is there any concern on when we will achieve becoming the third-largest economy?

The estimate now is that at some point in 2026-27 or 2027-28, we should become the third-largest economy in the world in the US dollar nominal terms. In purchasing power dollar terms, we already are the third-largest economy in the world.

Which sectors or areas will be boosting this growth?

So, there are a large number of sectors that are growing. As has been for some years, the services sector has been the driving force of our economy. It is now more than two-thirds of the economy. Even on the export front, our services are bigger than our goods exports. So, the big driver of our growth, so far, has been services, both domestic and externally.

The manufacturing sector did go through a great deal of churn in recent years but you are beginning to see certain sectors doing well, the electronic sector is doing well.  The defence sector is now coming up quite well and then you have also the construction sector where there is a lot of construction of infrastructure that is coming through. Many of the very big projects are going to be completed in 2025-26 like Jewar airport, new Navi Mumbai airport, many of the transportation projects in Mumbai. So, new projects, particularly like railway upgradation, etc., will now become the focus. So, all of this generates growth.

Every time there is some uncertainty, especially in the Middle East, there is always a risk of volatility in global crude prices because of our dependency. The current account deficit gets affected. Do you think we need to rethink our energy strategy, maybe increase the strategic reserves?

Our dependence on imported energy is a long standing issue. So, there are many things that we need to do.

First of all, we need to be able to build capacities in renewables such as solar and other non-conventional sources like nuclear. Second, we need to find resources domestically because in the end we do need to have some amount of hydrocarbons other than the limited coal reserves. We have been historically quite poor in gas and crude resources internally. In this context, there have been some interesting developments in Andaman and Nicobar and we will be pursuing these finds. Thirdly, we have to keep our sources of imported energy as diversified as possible because in an uncertain world, we can never tell where the blockages will be. Sometimes it may be in Eastern Europe, sometimes Middle East, some other day it may be in East Asia.

Since we cannot predict disruptions, keeping our sources as diversified as possible is an important part of our strategy. And finally, it is important that we also have some amount of storage strategic reserves so that at least in the very short run we can take the shock, as it happened very recently in the Iran-Israel conflict. So, all these four are part of the current mix of our strategy for dealing with these energy shocks.

The Chabahar port has been very crucial for India but with tensions in the Middle East, is it wise to continue investments as they might be affected?

Chabahar is part of a network of relationships we have in the Middle East. We have strong relationships with the UAE, Oman, Bahrain and, more recently, through the IMEC with Saudi Arabia.

So, you cannot see any one of these things in isolation, as we recognise that this is a somewhat unstable area. Therefore, India has a network of bilateral relationships with countries there because we need to be able to be flexible in our approach. So, for example, Chabahar is part of not just our Iran strategy but also our ability to connect to Central Asia and even Armenia.

At every point in time you have to maintain multiplicity of options and Chabahar is one of those options. When you are dealing with an uncertain world, you need to have optionality.