Demonetisation Signals An Important Regime Shift
CREDIBILITY INDEX DEEDS OF DEMONETISATION
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.
Photos: AMRENDRA JHA