Shift in household savings from financial to physical savings is not a bad thing: Sanjeev Sanyal

With process reforms, Sanyal says we can make the whole system much better.

In his conversation with Moneycontrol, Sanjeev Sanyal, Member of the Economic Advisory Council to the Prime Minister (EAC-PM) talks about the need for process reforms and whether financial savings are a real threat to growth. “What we ultimately care about is household savings and overall national savings going up or down,” he says.

Edited excerpts from the interview:

Tell us about the working paper on decriminalisation that you just presented. What are process reforms and how do you see this altering the business today?

Most of the reforms that everybody likes talking about tend to be what are called structural reforms, where you change the framework of the functioning of the economy in some fashion. For example, in 1991 when we got rid of licensing, that's a structural reform. Introducing inflation targeting framework, that's a structural reform. GST is a structural reform. Insolvency and Bankruptcy Code is a structural reform – because these are clear frameworks for functioning. But there is a whole new class of reforms, which doesn't change the way the framework works. Instead, it uses the same framework but improves functioning and efficiency. Those reforms are called process reforms and they are usually rather boring reforms – nuts and bolts reforms, changing a rule here, changing a process there, but cumulatively, they are at least as important, if not more important, in the long run as the framework reforms.

What is happening now is that we are paying a lot of attention to these process reforms. And the working paper is really about doing something about the legal metrology. Legal metrology laws in India relate to the laws relating to weights, measures, labelling and so on. And the point being made here is that there are serious problems with those laws. They are unclear. There is unnecessary criminalisation. There is lots of scope for rent seeking by officials and so on and so forth. And the case we make is that we can make it a lot better while balancing consumer interests as well. We can make the whole system much better.

The paper basically makes the case for dramatically improving the legal metrology laws, which have been around for some years and have been a source of major harassment and causing problems with ease of doing business. But as I mentioned, it's only one... We have been dramatically trying to expand the capacity of the patenting system in the country, and in the next 12 to 18 months you should be able to see the benefits of that. We are basically tripling to quadrupling the capacity of our patent office. We are doing many such other reforms as well.

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Can you expand on two or three such reforms that you think fundamentally changed something substantial in improving business sentiment or foreign investments?

One that we did during COVID was called the OSP reforms – Other Service Providers. As you know, we have a big BPO and IT-enabled services export industry. It's a big industry in India. The BPO ITeS industry, unfortunately, till 2020-21 was burdened by outdated laws imposed by the telecom ministry.

For example, work from home was actually illegal. I don't think people realise this but till 2021 working from home was effectively illegal. And while the individual working from home may not have been bothered by it, if you wanted to create a company based on this or any large system based on it, then all kinds of rules and regulations would be imposed on you. And you had bizarre ideas. For example, if you work from home, you were supposed to have an EPABX machine in your basement, just as an example.

I happened to bump into this entirely by chance because the Telecom Ministry at the height of COVID issued a notification saying that these laws were going to be held in abeyance till December 2020. This immediately raised my hackles because it meant that these laws were normally applicable. The moment I discovered this, I wrote a few notes on how to get rid of them and we did get rid of them. All these obscure telecom regulations, which consume as much as 60 to 70 percent of the management time of the BPO and IT industry, ceased to exist. Now we have a much more open system.

As a result of that, from the year 2021-22 to the beginning of this year, we saw massive expansion in the IT-enabled service industry. It slowed down in recent months, but for about a two-year period, it went for massive expansion. It was possible basically because of the OSP reforms. This is an example of obscure laws, which can really stall a major industry, and when you remove it, you just get this massive expansion. Similarly, we are also doing something with patents. We all want to think of India as Vishwa Guru, and we want to be in the knowledge industry and so on. But the fact is that till 2016, we used to only issue 9,000 patents a year. And after a lot of effort, we are now issuing about 35,000 patents a year. That's a huge improvement – 9,000 to 35,000.

Let me put it in context. America does 350,000 patents a year. And China does about half a million patents a year. Even if you discount the fact that many of the Chinese patents are of poor quality, they're still doing at least 100,000 worth of good quality patents. In that context, we also need to be doing at least 100,000 patents a year, but we need the capacity of our patent office to do it. Last year we wrote a report on this. And now what is happening is that the processes are not only being changed but there is also hiring of around 500 new patent officers. They are in the process of being hired. Over the next few months, they'll be hired and trained. By the first or second quarter of next year, our patent office will be bigger than it is today. In 18 months’ time, we will have the capability of doing about 100,000 patents.

There was RBI data saying that net financial savings had hit a 47-year low. This sounds very alarmist, but is it? The other piece of data was that household financial liabilities are at a two-decade high. Do you think these can really pose a threat in terms of financing growth?

That is not how things work. What we ultimately care about is household savings and overall national savings going up or down. And the evidence on that is clear. It is true that a proportion of that savings that is in financials has gone down. That is because many people are borrowing to build homes. Upgrading homes is a natural thing to do as you become a little bit richer. Not surprisingly, there is a shift in household savings from financial savings to physical savings. But in my view, that is not a bad thing. And if the financial system wants to attract these people back, then they need to find ways of getting them better insurance products, getting them better savings products.

Also read: India’s supply side capable of handling sustained 8% GDP growth: Sanjeev Sanyal

Do you see the government taking to privatisation of assets? What we have seen, even this year for example, the route that is commonly taken is stake sale and not necessarily through privatisation. Do you think that is a better way to create value for the assets that we have?

We look at listing or privatisation opportunistically. It's not an ideological point. Whatever sells at which point in time, whatever is convenient, we will sell. This year, we didn't just sell Air India, we also listed LIC. And I don't think we can sell LIC as it is such a large company, hence we listed it. By listing, the management and LIC will get used to being listed. But it takes some time to be able to deal with market scrutiny. It's not something everybody is used to. It requires some time for a company to get used to the market and the market getting to know them. We are quite happy to retain a certain amount of public sector banks in the system. As you've seen, the public sector banks have now dramatically improved their performance, but we have listed them so that market scrutiny remains on them.

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