Mr Kamath concurred with the author that at a nominal GDP growth of 12.5 per cent a year (in USD), the “doubling every six years would enable GDP to grow about 16 times from USD 3.28 trillion in 2023 to USD 55 trillion in 2047. This is eminently doable.” I agree wholeheartedly, and have argued for aiming at such sustained growth.
It is Breaking News, but of a different kind. It is not news about breaking the law or about breaking heads or about breaking homes. It is not the breaking news that had broken out several times in the past.
When the National Crime Records Bureau (NCRB) documents the rising graph of violent crimes, it is news of breaking the law. When vigilante groups beat up a young couple or lynch a person, it is news of breaking heads and bones. When officials use bulldozers to raze alleged encroachments, it is news of breaking homes. When the honourable prime minister calls the Opposition — especially the Congress — as the tukde tukde gang or urban naxals, the breaking news elicits a long yawn.
Breaking hopes, hearts
The all-important breaking news that I shall share with you today may break your hopes and hearts. Mr K V Kamath is a distinguished banker. He built the ICICI into India’s leading private bank; he was the first chair of the New Development Bank (the BRICS bank); he is, currently, the Chairman of the National Bank for Financing Infrastructure and Development (NaBFID). In a recent book review, he traced the path that India must take in order to attain the status of Viksit Bharat (Developed India) in 2047.
In an essay in a leading newspaper, Mr Kamath warmly applauded the author, Mr Krishnamurthy Subramanian, for “persuasively laying out his underlying theme… that India needs to break free from the pessimistic shackles of the past and set bold targets, underpinned by sound thinking.” Mr Kamath concurred with the author that at a nominal GDP growth of 12.5 per cent a year (in USD), the “doubling every six years would enable GDP to grow about 16 times from USD 3.28 trillion in 2023 to USD 55 trillion in 2047. This is eminently doable.” I agree wholeheartedly, and have argued for aiming at such sustained growth.
Sting in the tail
The sting in Mr Kamath’s review is in the last six paragraphs. He begins by listing the ‘four pillars’ that will shape India at 100: macro-economic focus on growth, social and economic inclusion, ethical wealth creation by the private sector, and a virtuous cycle ignited by private investment. Let’s examine the ‘pillars’ under the present government.
Macro-economic focus on growth: The indicators of unwavering focus on macro-economic growth are the data on fiscal deficit, inflation and interest rate, the current account deficit, and Debt/GDP ratio. The government has a long way to go to reach the FD target of 3 per cent of GDP (currently 5.6 per cent). Inflation is still above 4 per cent and the RBI’s repo rate has been at 6.5 per cent since May 2022. The CAD was still large (USD 23.2 billion) at the end of 2023-24 but foreign remittances saved the day. The Debt/GDP ratio at 18.7 per cent is at a manageable level. The record is mixed.
Social and economic inclusion: The biggest casualty under the Modi government is the failed attempt to reduce inequalities. Crony capitalism, public investment in capital intensive industries, reduction in corporate tax, taxes on goods of mass consumption, high fuel prices, inadequate minimum wages, neglect of tenant farmers, bias against services consumed by the poor (e.g., Vande Bharat trains vs second class and unreserved coaches in Railways) and other policies have increased the economic inequalities between the top 1 per cent and the bottom 20 per cent of the population. Social inclusion has also suffered a setback because of the hate campaigns and communal conflicts. The second pillar identified by Mr Kamath is wobbling and infirm.
Ethical wealth creation by the private sector: Bank frauds and corporate collapses have increased in the last 10 years. The Insolvency and Bankruptcy Code has become an instrument to legitimise bank write-offs and to acquire control of so-called failed companies. The recovery rate under IBC is just 32 per cent. Successful resolution applicants have reaped a windfall. Intrusive regulations, creeping controls and an oppressive tax administration have demoralised ethical businesspersons; young entrepreneurs prefer to do business abroad or migrate. 4300 Indian millionaires have left India (Mr Ruchir Sharma, ToI). The Competition Commission has actually encouraged monopolies and oligopolies. There is very little competition in industries such as airlines, ports, airports, telecommunications, oil refinery and solar energy. Rapid consolidation is underway in cement, steel, power and retail, and it is a moot point whether competition will increase or decrease. The trends do not augur well for a competitive market economy which is the time-tested way to ensure ethical wealth creation by the private sector.
Virtuous cycle ignited by private investment: Private investment is lagging behind government investment despite the government’s appeals, sops, cajolery and threats. Since business is not trusted by the government, business does not have confidence in the government. Shotgun weddings — takeover of businesses through questionable means — have soured the atmosphere. Over 8000 Indian companies have registered in Singapore since 2000 (HCI, Singapore). The overreach by investigative agencies has spread fear among businesspersons. In September 2022, the finance minister asked Indian businesses what is stopping them from investing in the Indian economy?
Mr Kamath is eminently qualified to instruct us on these issues.
