India aims to make the rupee a hard currency over the period of a decade as it looks to increase the use of INR in global transactions, particularly those related to the South Asian nation, says Sanjeev Sanyal, member, Economic Advisory Council to the Prime Minister.
In an exclusive interaction with Moneycontrol, Sanyal emphasised that India’s efforts to internationalise the rupee has “nothing to do with de-dollarization”. The endeavour is to make INR part of the existing list of hard currencies such as Euro, the Yen, the Singapore dollar, the British Pound, and the Renminbi, he said.
Sanyal spoke on a variety of issues ranging from G20 to GDP. Below are the edited excerpts of the interview:
Q: Many economists have raised their growth forecast for India's GDP from earlier estimates after data showed a 7.8 percent growth for Q1 FY24. However, they have also flagged that the pace is likely to slow down in coming quarters due to lagged impact of monetary policy tightening and the fallout of global slowdown, among others. What is your estimate of India's GDP for FY24? Which sectors would support, and which ones are likely to drag growth?
The GDP figure for Q1 is not surprising. It suggests a good solid growth rate even if the headline number was helped by statistical factors that will reverse in coming quarters. For this financial year as a whole, we continue to see a GDP growth between 6.5 percent to 7 percent. However, there are several imponderables – impact of uneven rain, impact of global trade slowdown, monetary policy tightening across the globe. So given these uncertainties, a GDP growth rate of 6.5 percent to 7 percent is a good one. On the positive side purchasing manager's index (PMI) readings suggest that supply orders remain strong in both manufacturing and services.
Q: CPI inflation came in at a 15-month high of 7.44 percent in July and according to economists it is expected to remain elevated in August as well. The spike in inflation is primarily on account of vegetables as well as staple items such as cereals and pulses. When can we see inflation going back to RBI's target of 4 percent now that we are so far from even the outer mark of 6 percent?
There is no underlying long-term inflation in the system. What we have here are jumps in prices of vegetables like tomatoes that happen every year leading to a spike in inflation. There is no role for monetary or fiscal policy in this and the spike seems to be reversing already. This is a structural issue that needs to be solved by investment in cold chain facilities.
Meanwhile, wholesale prices are deflating, If anything, the underlying momentum in prices is slowing. Even tomato prices are now crashing after seeing a jump although there may be concerns onion prices may go up. The spike in the headline figure should not throw us off. This particular kind of inflation comes down as quickly as it went up.
Q: You have been very vocal on the biases of western rating agencies? Is India taking any steps towards these issues in terms of conversations with key agencies or putting their own systems in place? Recently, Moody's, while affirming India's rating, cited Manipur as a risk. How do incidents like Manipur impact India's growth potential especially as an investment destination?
There is a problem with the way India’s social and economic issues are projected and taken into account by various global rankings. These include perception-based rankings on freedom, democracy, education. There are systemic biases in them. Some of them are clearly ideologically driven by a small cabal of financial sponsors. In the past, India used to ignore them, but these views have consequences since they ultimately end up in sovereign ratings. Now there is a more insidious set of indicators - the environmental, social, and governance (ESG) norms. And, given that these are being applied widely in trade and investment, we are effectively allowing these indicators to impact every aspect of social and economic and political life.
Note that there is no accountability on the part of those who are coming up with these indicators. We have raised this issue in various forums including the press and the World Bank. In the end, what has to happen is that India needs to create its own benchmark and indices. And, we are now beginning to see Indian organisations looking to do so. Care Ratings plans to do a sovereign rating, other institutions also plan to create global indices. India now needs to have the confidence to create our own benchmark and ratings.
Q: India's monsoon in August was at a century-low. Although there are predictions of a normal monsoon this month, there are concerns around El Nino conditions intensifying going ahead. How do you see this playing out for agricultural growth? There are already worries over rural demand on higher food inflation and lower income.
As things stand, there have been uneven rains and there will be an impact of it, but it is difficult to talk about the extent of that impact so early in the cycle. Also note that the rural economy today is mostly driven by non-farm sectors. About two-thirds of the rural economy is not driven by agriculture and therefore there is more resilience in the rural economy than before. As far as food security is concerned, we currently have adequate food stocks. If necessary, we will take additional steps.
Longer term, we need to realise our population is now growing at about 0.7 percent and we cannot have the farm sector grow at over 3 percent just to feed the local population. So we need to think about enhancing agricultural exports so that we can take advantage of excess production.
Q: Do you see steps such as curbing import of laptops and PCs as well as banning the export of a certain category of rice impacting India's economic position in the world? Second, do you feel tax incentives are a necessity to lure investors such as Tesla and Apple to make in India?
As a general principle there should be free flow of goods and services although in specific cases, we may make occasional interventions. And in this specific case the plan is to smoothen out the transition.
On encouraging large investments, we have the Production Linked Incentive (PLI) Scheme already in place and if necessary, more steps can be taken. We have also reduced corporate taxes dramatically in the past. There may be need for support for some specific sectors, but generally tax and infrastructure are not major hurdles anymore. Other issues such as acquiring land, that are mostly state government issues, need to be sorted out.
Q: We are awaiting revisions in key data sets as we are yet to come up with the latest versions of the Consumer Expenditure Survey and Census. Crucial data sets such as GDP depend on these revisions. Is India losing out on accurate data measurement due to delays in these surveys?
There is a big need to overhaul India’s statistical systems. They are now clearly outdated and this is not just restricted to the routine upgrading of the base year, which also needs to be done. There is a need to think beyond the traditional methods of data collection and analysis. There is a plethora of new data sets that did not exist earlier – Goods and Services (GST) data, satellite data, payments data, private sector data such as Google Mobility Index and so on. Today, these data sets are easily available, almost real time. I am a big believer in incorporating and actively using them for economic management. We have been doing it anyway, for example, during Covid management.
Moreover, time between when the conventional surveys are done and when the data is made available also needs to be shorter. Thus, there needs to be a rethink on the kinds of data sets we need, the frequency at which we need them, and even on how the existing data set should be updated.
Q: The government has been pushing for internationalising the rupee. Are bilateral local currency settlements with individual countries enough for this agenda to take off or do we need more in terms of a unified system to increase acceptance of the rupee?
India is not only doing this with the rupee, but we are also simultaneously doing this with regard to our payment system, our financial messaging system called Structured Financial Messaging System (SFMS), which is in fact better than SWIFT. We would like over a period of a decade for the rupee to become a hard currency. This has nothing to do with de-dollarization. The world already has one anchor currency – the US dollar, but it also has a large number of hard currencies such as the Euro, the Yen, the Singapore dollar, the British Pound, the Renminbi. All we are trying to do is make the Indian currency a hard currency which is used for global transactions, particularly those related to India. So once that becomes more prevalent, other countries will become more willing to hold our bonds as part of their foreign exchange reserves, we will become part of the International Monetary Fund's (IMF’s) SDR basket and so on and so forth. So, then the rupee will become a regular part of the global financial system.
Q: How do you see India’s role as the voice of the Global South in G-20 and being able to set the agenda for global policy making?
India has started important conversations on the need for global regulations on cryptocurrency, on reforming multilateral international organisations; we have started a new stream in G-20 for start-ups among others. In many areas, India has opened up spaces to discover new vistas. This will culminate in a communique which will be drafted in the next few days that I am not in a position to comment on. In all this, however, India has spoken up for the Global South.
Q: Is India a good candidate to balance between different blocs especially with the likes of China and Russia on the one hand and UK and Europe on the other?
We are trying to pursue our own interests. We are not going out of our way to balance between different blocs or side with any of them. Our agenda is to serve the interests of 1.45 billion Indians. So, whether it is in G20 or on a bilateral basis we have absolute clarity on our interests and we will pursue them.
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