De­mon­eti­sa­tion Sig­nals An Im­por­tant Regime Shift


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have been most af­fected by it, have ac­tu­ally backed the move. So, what this means is that peo­ple don’t do nar­row cal­cu­la­tions for their eco­nomic self-in­ter­est if there’s some­thing big­ger. Un­less you make re­forms ap­peal in that big­ger sense, it will be dif­fi­cult to crack these chal­lenges.

Which do you think the big­gest achieve­ment of de­mon­eti­sa­tion — the shift to dig­i­tal or the crack­down on cor­rup­tion? They are both im­por­tant and they are both re­lated. But with­out hedg­ing, I do think the main ob­jec­tive and sig­nal is that we will puni­tively and per­ma­nently in­crease the cost of il­licit trans­ac­tions. It is try­ing to sig­nal a regime shift. And that’s the most im­por­tant mes­sage from de­mon­eti­sa­tion.

Has de­mon­eti­sa­tion moved us fur­ther away from 8% growth? As I said, there’s go­ing to be a tem­po­rary dip in growth, which we have quan­ti­fied. But we will be back on the path we were on, which is 6.75-7.5% next year. So, I think we can get back to pre-de­mon­eti­sa­tion lev­els.

But, there’s the next level of 8-10%. I think that re­quires a favourable ex­ter­nal en­vi­ron­ment. We keep for­get­ting what I said in the last sur­vey that when we achieved 9% growth, our ex­ports—both mer­chan­dise and ser­vices—were grow­ing at 20-25% in dol­lar terms be­cause the in­ter­na­tional en­vi­ron­ment was favourable. We need sup­port­ive en­vi­ron­ment in­ter­na­tion­ally.

We need to un­der­take re­forms. We need to chip away at the three meta chal­lenges—am­biva­lence of the pri­vate sec­tor, in­ef­fi­cient dis­tri­bu­tion and strate­gic dis­in­vest­ment—if in­ter­na­tional en­vi­ron­ment is not go­ing to be co­op­er­a­tive.

There is this in­creas­ing re­frain in­ter­na­tion­ally that the clas­si­cal age of glob­al­i­sa­tion is draw­ing to end... The age of glob­al­i­sa­tion be­gan af­ter World War II. In fact (economist) Paul Krug­man of­ten quotes an ar­ti­cle that I wrote. Then, there was the age of hy­per-glob­al­i­sa­tion. I do think some­thing fun­da­men­tal has shifted in the world. I think one can­not rule out the pos­si­bil­ity that we may be en­ter­ing a pe­riod of de-glob­al­i­sa­tion go­ing for­ward. There is so much un­cer­tainty and un­pre­dictabil­ity in ac­tions of ma­jor na­tions. It is a se­ri­ous worry. I do be­lieve there has been a tec­tonic shift. We can no longer take those de­vel­op­ments or evo­lu­tions for granted.

In­dia is a ma­jor ben­e­fi­ciary of glob­al­i­sa­tion... No ques­tion. All the coun­tries that grew—East Asian tigers first, then China and then In­dia—have been ma­jor ben­e­fi­cia­ries.

How do you get 25% ex­port growth if world markets are not open? But (the) corol­lary to that is the mes­sage we should send to our lead­ers… that in the old days you could take oth­ers’ open­ness for granted but no longer. We need a new lead­er­ship of voices to main­tain that open­ness be­cause that is in our own self-in­ter­est. We have to take the ini­tia­tive, which means we have to con­trib­ute as well.

You can’t say keep your markets open, we have to open our markets as well. That, I think, is the pol­icy mes­sage for us as well. China is stak­ing claim to lead­er­ship. I think we should too be­cause we want to in­flu­ence this process.

Have you quan­ti­fied these changes in your growth fore­cast? I have quan­ti­fied it in what it can do to our ex­ports. In the sur­vey, there is a box on what will hap­pen to our ex­ports if the world became pro­tec­tion­ist. We mat­ter less in terms of global man­u­fac­tur­ing but we mat­ter a lot in terms of global ex­ports of ser­vices. So if we want to in­crease our ser­vices, that af­fects the world’s abil­ity to ab­sorb that.

The world is in­creas­ingly more in­ter­con­nected, that we can no longer sit back pas­sively and must take on more re­spon­si­bil­i­ties is one of the mes­sages com­ing out of this.

Would you sug­gest In­dia bring down tar­iffs to lower bar­ri­ers to trade? I think we have brought down our tar­iffs more than peo­ple give us credit for. We should have a mul­ti­pronged ap­proach to this. We need to push our FTAs (free trade agree­ments) with Europe and the UK. I do think there is an open­ing for re­viv­ing WTO again be­cause when Asian in­te­gra­tion is on hold, the trans-At­lantic in­te­gra­tion, Nafta, is on hold. I do think that the mul­ti­lat­eral process has an open­ing. We need to play a big role in that be­cause tra­di­tional lead­ers, the Amer­i­cans, are not… go­ing to be

cham­pi­ons of this for some time at least.

What is your quick take on the H-1B de­vel­op­ments? It is very trou­bling. Of course it is still at an early stage but just the sig­nal it sends out is that it is go­ing to be dif­fi­cult. It’s not just the H-1B but you can get re­stric­tions in out­sourc­ing as hap­pened two elec­tion cy­cles ago. Ser­vices ex­ports had just be­gun to look up and they can be set back.


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