- 13 hours ago
In this edition of India Today Roundtable Special, the focus is on the fuel price hike and the state of the Indian economy, amid the ongoing West Asia conflict.
Category
🗞
NewsTranscript
00:12Hello and welcome once again to an India Today Roundtable special where our focus this week
00:19is on the state of the economy. Fuel prices have been as expected hiked by the government
00:26and Prime Minister Narendra Modi has asked citizens this week to tighten their belts
00:31and curtail consumption. With the conflict in West Asia far from over, these are worrying signs
00:39for the Indian economy and everyone is asking just how bad could it get. We'll raise the big
00:46questions today. Should we be bracing for more fuel price hikes now? Is India entering an
00:52inflationary spiral? Is a savings push going to drag down growth? Is India's Goldilocks
00:58moment over? And is the Indian economy strong enough to absorb these global shocks? On the
01:05Roundtable, we'll be joined by special guests who have tracked the Indian economy for years.
01:10My first guest is the distinguished economist and the newly appointed Vice Chairman of Neeti
01:15Ayog, Dr. Ashok Lairi. Appreciate you joining us here, Dr. Lairi. I want to cut the chase
01:21and ask the big question. The fuel price hike announced by the government. Do you believe
01:26it was inevitable or could it have been avoided given the oil price surge? Was it to be expected?
01:36Simple question, Rajdeep, is since we are not going to get oil at a subsidized price from
01:41the world market, we are going to import something like almost 90 percent, 85 to 90 percent of our
01:48oil. And we pay top dollars, an international price for it. India has to pay for it. Now,
01:54the question is, in India who? Are the users going to pay for it? Or are you going to pay
02:02for it by
02:02cutting down your health budget and education budget? So if you believe in users' pay principle,
02:10then it's the people who are using cars, transportation, and we need to sort of economize at least for
02:18the time being until the problem gets resolved. And the oil price rise, I think it's the right move
02:26because the oil marketing companies cannot absorb this loss for a long period. So I think it's the right
02:35adjustment. And when you adjust the price, these are, after all, how will you respond? But how will
02:43you? Yeah, it is a supply shock. But how will you respond, Dr. Lairi, to those who say that when
02:50global crude prices were low, the benefit was not passed on to the consumers by governments.
02:55Instead, duties were heightened. The government made windfall profits. And now when global prices
03:00are surging, the burden is on the consumer, on the taxpayer once again.
03:07Now, here, I think we forget the history. For a long period, oil was a controlled commodity
03:15under price control. And there was an oil equalization fund where losses used to be accumulated.
03:22Now, whatever sins we committed in the past by keeping oil prices at subsidized rates,
03:28that those losses had to be made up. And partly when oil prices fell, if domestic prices were
03:38not adjusted, it was partly to make up for that, to compensate for the sins that we committed
03:43in the past. Furthermore, if the government is making some money to spend on other meritorious
03:53banks' heads, I don't think you can object to that.
04:00But should we be preparing for more? Should we be preparing, Dr. Lairi, for more fuel price
04:06hikes? Because earlier this week, the prime minister urged a spate of measures, including
04:11curbing fuel, calling for fuel conservation, work from home, limits on travel. Do you believe
04:18that he's preparing the country for what could lie ahead? And do you fear that up ahead, there
04:24could be even more fuel price hikes, particularly if the West Asia conflict is not resolved and
04:30the Strait of Hormuz is not open?
04:34Now, here, you can read the signal in two ways. One, you have a supply shock. Supply has gone
04:42down. So either you can voluntarily cut down on your demand and supply and demand adjust themselves
04:53without much of a price rise. If you do not adjust demand, then prices will go up and do
05:00the needful. I think you can read the prime minister's message as this is what we can do.
05:07We can sort of manage the demand and soften the price shock that is likely to come. If
05:15you do not, then the price shock would be even higher. Now, do you read this as a danger signal?
05:22The prime minister is telling us all hell is going to break loose, so you brace yourself
05:27for it. I don't think we should read it like that because I believe, like many others, that
05:35the Strait of Hormuz imbroglio cannot continue forever. And it's going to be self-limiting.
05:43There will be good sense will prevail and the Hormuz will be open again. And oil prices,
05:48and like we have seen in the past, the first oil price shock, the second oil price shock,
05:54after the oil prices go up, then they decline. I'm still waiting for that day when that will happen.
06:00When it almost opens up, you'll find all of a sudden international oil prices have gone down a lot.
06:06So I don't think it's quite right to interpret the prime minister's message as danger signal
06:14and all hell is going to break loose. The prime minister is not saying that.
06:18According to me, the prime minister is saying there are tough times, turbulent times.
06:24they will come to an end. But in the meantime, if you want to soften the blow on the economy,
06:31you better brace yourself with some demand management measures voluntarily.
06:39But how does one look at the state of the economy at the moment? Because the rupee has depreciated.
06:46It's hit a new low of 95.94 paise to the dollar. You've had FII outflows growing. Foreign investors
06:57have pulled over $20 billion from Indian equities in just the first four months of 2026. You've had
07:03the current account deficit taking a hit. You've had a general sense that growth is slowing down and
07:11inflation is rising. Look at the WPI wholesale price index numbers for the month of April. So
07:16put together, how dire is the situation? And perhaps that has led to people pressing the panic button
07:24when the prime minister called for austerity. No, I don't think we should press the panic button.
07:32Because in this turbulent times, India is still growing at 6%. Most people are saying we're
07:38likely to grow at 6%. And 6% is not too bad. In normal times, I would have said 6%.
07:44We should go into
07:45money. But with this world turmoil going on, 6% is not too bad. Look at inflation. Inflation,
07:53consumer price inflation is still, I mean, whether it is breach, 4 plus 2, that's yet to be seen.
08:01But it's not double-digit. Remember, the second oil price shock in the 70s, I think. Inflation had
08:09gone to double-digit. Now, foreign exchange position, we still have forgotten that at times,
08:19our foreign exchange reserve used to cover only two, two and a half months of imports. We still have
08:25seven hundred billion dollars, which is like nine months of imports. So is all hell going to break
08:32loose? No. But if Hormuz Straits is not open, and the hostilities continue, if it gets prolonged,
08:45and it's not an influenza which is going to correct itself in three days, it's typhoid or malaria which
08:52is going to take a long time, then we must prepare otherwise. But right now, I think there is
08:59still scope for optimism. And we can say that this is going to come back.
09:06You're saying there's still scope for optimism. You're saying there's still scope for optimism.
09:12But the fact is, even before the conflict broke out in West Asia, there were some worrying signals.
09:17For example, as I mentioned, FII outflows, FDI foreign direct investment into the country seemingly
09:24was on the decline through the last financial year. And there's a sense, perhaps, that we need
09:29to do much more excellent reform. There were those who called it the Goldilocks moment. So there were
09:35the optimists calling it the Goldilocks moments. And there are the pessimists now who are saying under
09:40the headline numbers, there are worrying signs for the economy. Is the truth somewhere in between?
09:48Now, what you say, that this sort of slowing down of foreign investment, a lot has happened even
09:57before the Holmose Strait. Remember the tariff problem? The United States under Trump introduced all
10:06these tariffs and trade restrictions. So these were turbulent times even otherwise. And money is shy
10:14commodity. Whenever there is uncertainty, and especially in the United States, policies are not
10:21very clear as to where they are going to go, FDI and FII both became shy. So I'm not denying
10:29the fact
10:30that foreign investment flows have not been buoyant in the recent past, even before the Holmose crisis.
10:39But having said that, I think investment, you will remember that whenever such foreign investment
10:48bottoms out, then when you improve your ease of doing business, and profitability prospects improve
10:55in the domestic economy, foreign investment flows back with a vengeance. So I'm still waiting that if
11:03we do the right things, when the uncertainties reduce, find foreign investment to flow back.
11:12Because they need China plus one. If I may ask you then from, yes, if I may then ask you
11:21from your
11:21vantage position, one, two, three, three, three, three policies, sorry to intervene, three policy prescriptions
11:28that you would like to see happen in the next few months, to in a way cushion some of the
11:34some of the hardship that might lie ahead. What would be those three policy prescriptions?
11:41First is keep your cool. Don't panic. There is enough ammunition in our foreign exchange reserves.
11:51And in terms of depth of defense, that we can manage the crisis, as long as it doesn't get
11:58prolonged over months and years. If it limits itself to a few weeks or a few months, we'll be okay.
12:08Second, don't try to cushion the oil price rise. If international price has gone up, please adjust
12:18domestic price accordingly. Don't cut your health budget or education budget or your infrastructure
12:24budget to provide oil subsidy. Third is accelerate the progress in ease of doing business so that not
12:36only domestic investment, but foreign investment also flows in and improves the capital account.
12:43Do you believe all this talk of austerity must begin with government? Government needs to cut the flab.
12:50You've also been a politician. You're seeing the way freebies are being given during elections.
12:55And that's where many middle class people ask, taxpayers ask that you're calling for austerity
12:59after the elections are over. During the election, we see extravagance promises being announced.
13:04Most state treasuries are bankrupt or close to bankruptcy, facing huge debt. Do you believe all of that needs a
13:11relook?
13:15Now, when it comes to politics, your question is that these freebies, so-called freebies,
13:22does it show that the government is not austere? Now, you can have a debate with many people who feel
13:31these are social welfare measures. And as the country develops, we need to help the indigent,
13:37the poor, and the vulnerable. Others feel that in the name of helping the poor, indigent, and vulnerable,
13:46you're actually giving a free-for-all to all sections of society. I don't want to get into that.
13:52But that's the prerogative of political parties and political leaders. And after all,
13:58these political parties are supported by the people. In a way, whatever policies are followed
14:04by political parties and political leaders, they reflect the popular will. So, I don't think
14:11you should absolve ourselves if you think this politics is not a good politics. I don't think
14:21that would be correct, because good politics is what gets you the votes. Politicians think this will
14:27get you the votes, and people give votes according to that, so it's been followed.
14:31Now, having said that, the government austerity that was announced was not in the field of policies,
14:40but it was in the field of cutting down the convoy size, cutting down on foreign travel,
14:46things of that kind, not having online meetings, and not traveling to places for holding meetings.
14:55And those are being followed. Whether in the long run your question that will this bring more
15:05maturity to political parties and political leaders in being careful in giving welfare
15:12transports, that question we have to see. Because it will reflect what the political parties and
15:19political leaders perceive as what people want. If people want freebies and that is what the
15:26votes for, then I'm afraid that political politicians will follow that policy.
15:38Okay. I'm going to leave it there, Dr. Lairi. That question was answered a bit like a diplomat,
15:45but I can understand that it's a question that deserves a wider debate as to just to what extent
15:52should political parties announce these large cash transfer schemes. But for now, for joining me,
15:58I appreciate you for kick-starting this valuable debate. Thank you so much.
16:06Okay. Let's move on to our next guest here on the Big Economy Roundtable. I'm joined by Dr. Arvind
16:12Subramaniam, leading economist, former chief economic advisor and co-author of A Sixth of Humanity,
16:17Independent India's Development Odyssey. Good to see you, Dr. Subramaniam. There are lots of optimists
16:23like Dr. Ashok Lairi who are saying, look, this is a temporary supply shock. The economy is still
16:29strong and resilient. Do you share that optimism or do you believe that a deeper crisis could be looming?
16:41Well, first of all, I think these are actually
16:46a shock and a challenge. And let me kind of put it that way. It's a shock in the short
16:56run to
16:57affordability and livelihoods because of the energy crisis. Now, whether it's short term or long run
17:05will depend a lot on how long this squeeze lasts, how long the war lasts and the state of Hormuz
17:13remains closed. Even if it reopens quickly, it will be longer than people think because supply cannot
17:21come onto the market very easily. So, Rajdeep, I want to emphasize very strongly that in India,
17:30the narrative is that it's a foreign exchange crisis, you know, that we need to bring back capital.
17:36It is, I think that's a slight misdiagnosis. This is not a foreign exchange crisis because we have,
17:44you know, $700 billion worth of reserves. It's not that we can't buy stuff. It is an affordability
17:51and a livelihoods crisis because prices have to go up and livelihoods are going to be affected.
17:56And that's the way we should think about it. And the second is that it is not just a crisis
18:03about energy.
18:04There is also a medium term challenge that's reflected in what's going on with the basic Indian
18:11development and growth model. Is it delivering jobs? Is it delivering growth? Is it sustainable?
18:19That also is something that I think the current crisis is highlighting.
18:27It's interesting. So you're saying don't just look at it as a foreign exchange crisis, as many are.
18:32You're saying this is fundamentally linked to certain possibly structural problems of jobs,
18:37livelihoods, which could get accentuated if we get into an inflationary spiral going ahead. Am I correct?
18:44Well, I think distinguish the two. In the short run, I think there's a clear, you know, affordability,
18:51prices, livelihoods challenge, right? It's not yet a crisis. And the task here, Rajdeep, is look,
19:01this is a crisis that's affected all countries around the world. The challenge is how is the burden of this
19:09crisis shared fairly and equitably across sections of society? I think that's the policy and governance
19:17challenge, not, you know, how should we bring back money from abroad or raise interest rates,
19:22retract capital? How do we, you know, apportion the burden of what this crisis has inflicted on all
19:31countries and on all sections within India? That's the governance challenge in the short run.
19:40Because so far, the government's response, you've heard the prime minister this week,
19:45virtually suggest cut down on consumption, save more, don't buy gold, cut down on foreign travel.
19:51You seem to suggest that it must go well beyond that, that that is not really the solution
19:56to what is the jobs and livelihood crisis, as you're calling it.
20:01Yeah, see, I think in the short run, you know, exhortation to private austerities is a good
20:08starting point. But it's not a substitute for, you know, the real burden sharing that has to happen.
20:14Because remember, Rajdeep, I think this excessive focus on the rupee and the kind of somewhat,
20:20I mean, slightly false prestige associated, has distracted from, you know, what needs to be done.
20:28Some prices have to go up. The burden has to be limited on the poorer sections of society.
20:34And to some extent, the exchange rate has to go down, prices have to go up, because that's part of
20:41the adjustment. So just to give you one example, the prime minister has rightly said, say, let's reduce
20:47foreign travel. Well, if the exchange rate goes down, foreign travel is going to become more expensive.
20:53It is going to be more expensive for the middle class to send their kids abroad for education.
20:58That is necessary and desirable. What is problematic is, of course, you know, the prices of energy,
21:06which are used by poor people and farmers, you know, fertilizers, petroleum, gas. And there,
21:14I think we need to find a way of we cannot avoid price increases. We've seen the first round today.
21:20I think many more will have to come. But how do we do it in a way that protects the
21:25poorest?
21:25That's the challenge in the short run. Now, the development challenge is something quite
21:30different, Rajdeep, because I think people focus on the rupee decline in the last few months.
21:37The rupee declined a lot and amongst the most in the year preceding the war. So the question is,
21:45why did that happen? If, you know, if we were such a great place to invest in and supposedly
21:52growing at seven and a half, eight percent, why are people not investing? I mean, it's a bit of a,
21:57it's very bizarre to say that we're growing at seven and a half percent and yet capital is fleeing the
22:02country. FDI is not coming in. Above all, private investment is so still remains weak. So that's the
22:10broader development challenge that the obsessive focus on the rupee, et cetera, should not obscure.
22:20In fact, foreign investors pulled over 20 billion dollars from Indian equities in the first four
22:25months of 2026. FI outflows, FDI has slowed down. I want solutions. I'm asking all my guests today
22:31solutions. What are the three solutions you would give Dr. Subramanyam? Where would you start?
22:36You know, firstly, for the short run, I do think we have to find a way of, you know,
22:43raising prices of essential of some of the energy prices gradually. I think we have to do that.
22:52But again, how do we find ways, you know, of limiting the impact on the poor? I think, Rajdeep,
22:59we have to get much more serious about the renewable energy transition. I think we keep
23:06talking about energy dependence. You know, we have such a golden opportunity with, you know,
23:12solar and wind coming in. We need to see a whole lot of reforms of the power sector to really
23:18make that
23:18happen. And then I think on the private investment, we really need to understand, Rajdeep,
23:25we say, you know, macro stability, growth, et cetera, and yet private investment, you know,
23:33is not picking up. So I think we need to get to the heart of why is private investment not
23:38picking up?
23:39Why are we not competitive internationally on exports? And that has to be the focus, you know,
23:45like, you know, like mission mode focus on reviving private investment.
23:53How do you revive it? How do you revive it? There's no magic bullet, surely. You're saying this is
23:58actually a challenge and an opportunity in a way to revive private investment.
24:02Yeah, it's an opportunity. Exactly. See, Rajdeep, those who sort of say there's some magic wand you
24:09can, you know, wield to attract private investment, you know, it has to do with doing, firstly,
24:16it has a lot to do in terms of what not to do, Rajdeep. You mustn't weaponize the state apparatus
24:23to go after, you know, various people, including investors, right? You mustn't favor only some
24:30groups over, you know, others more broadly. You must be able to take everyone along in decision
24:38making. So I think there's a lot of don't do's as much as the do's that you need to attract
24:46private
24:46investment. And, you know, we should take a leaf out of those states that have managed to attract
24:51private investment. You know, the southern states have attracted a lot of investment from China.
24:57Let's see what they're doing right. And maybe, you know, Uttar Pradesh, Bihar, Madhya Pradesh,
25:03because there are lessons for state governments as much as for central government in terms of what
25:08to do to attract private investment. Do you believe it will get much worse before it gets better,
25:15given that there is so much of uncertainty over when and how the war will end in the Gulf?
25:20Rajdeep, I think we have to be at least prepared for things getting much worse before they get
25:27better, partly because of the war itself, but also about one is anxious about agriculture as well.
25:33You know, temperatures are very high. They say the El Nino might have an effect at least for the winter
25:38season. So I think certainly we should be prepared for things getting worse before they get better.
25:48I'm going to leave it there, Dr. Subramaniam. Always a pleasure talking to you.
25:52Thank you very much for joining me here on our roundtable. Thank you.
25:57Okay, let's widen the debate on the big economy roundtable. Neelkan Mishra, Chief Economist,
26:04Axis Bank, Head of Global Research, Axis Capital, joins us. Also joined by Soumya Kanthi Ghosh,
26:10Group Chief Economic Advisor, SBI, Member Prime Minister's Economic Advisory Council,
26:14and Member 16 Finance Commission. Shankar Ayer, Political Economist,
26:18author and columnist joining me, Santosh Merotra, Professor Merotra from the Center of Development,
26:23University of Bath as well. He's also been at the Center for Labour at JNU. I appreciate
26:27all of you joining us. I want to ask you the big question. When you look at the fuel price
26:32hike
26:32that's been put in and the general message from the Prime Minister calling for more savings, austerity,
26:38call it what you will, are we heading for very difficult times? Neelkan, why don't you start first?
26:43Are we really heading for tough times for the Indian economy?
26:51Yes, because what has happened with the oil market is that till about a couple of weeks back,
26:58maybe two weeks back, the oil market was what they call in severe backwardation. So,
27:05the current prices were very high. But by March 27, the expectation was that oil prices would fall to
27:12$70, $75. Over the past 10 days, the prices have now jumped up to $83. So, what has happened with
27:18China releasing a lot of inventory in the near-term, the near-term shortages have eased, but the
27:25likelihood that they will now keep replenishing their depleted inventories means that oil prices will
27:31remain higher for longer. Which means that some of the buffering that the government was doing,
27:37in our estimate of the 2% of GDP growth headwind that comes from higher energy prices, about 1.2
27:45% of
27:45GDP was being buffered or cushioned by the government. While I think the government has fiscal space to
27:53keep doing this for many more months, I think the challenge is the dollar. So, there is a balance of
28:00payments pressure, meaning you need the dollars to pay for the oil you're importing. And if you know
28:07that this is going to last one year, you need to start passing along some of the pain and therefore
28:14raise prices at the retail level so that demand starts to adjust. And more importantly, given that
28:19there was panic setting in in the currency markets, you want to give a signal to the currency markets that
28:25longer-term adjustments are being made. So, I expect that there may be some more, but not a lot more
28:32price increases ahead. So, to say that there's very bad times ahead is, I think, a bit of an exaggeration.
28:38But I do think that some of the pain that was being cushioned by the government will be passed through
28:43in the next several months.
28:47You know, Professor Merotra, a lot of economists and Neil Cutt also seems to suggest that it's not as
28:55bad as it looks. It's certainly, many say, not as bad as it was during the pandemic period.
29:00We are, our macroeconomic fundamentals are strong. We keep hearing that. Is that talking up the economy?
29:08Do you believe that under these headline numbers there are reasons to worry?
29:14There are reasons to worry. However, by and large, my understanding is not very dissimilar from that
29:21of Neil Kahn's. I believe that more action would have been taken and should have been taken two months
29:28ago. So, what action has been taken is too little too late. We all know what the reasons are. They
29:37are
29:37political. Elections were happening. What I'm worried about is the fact that they've raised the price
29:43of diesel and that's going to raise the inflation rate more than it should, it could have. If you
29:50raise the petrol price and you continue to raise the petrol price, that's much better for the simple
29:57reason that the inflationary impact of diesel is going to be felt across the economy for a long time to
30:05come. So, it's not a very sensible approach to increase the price of diesel. Other than that,
30:12if I was in the government, I would actually- So, are you saying, are you saying just a minute?
30:19Sorry, go ahead. I'm sorry for stopping you. Please go ahead.
30:22Go on. I was making another different point about fertilizers. You see, we also import fertilizer and
30:29obviously, because of the shortages, the price of the fertilizer is increasing. And we have to
30:34understand the fiscal cost of the fertilizer subsidy was already excessive in the sense of it was 1.85
30:41trillion rupees in the last fiscal year. This year, it's likely to be somewhere in the region of 2.3
30:47LAC crores. So, it's critical that, and there is excessive use of urea happening. 85% of the
30:55fertilizer subsidy goes towards urea. And that's causing soil, you know, worsening of the quality of
31:01the soil. It's reducing yields, and it's causing fiscal pressure for the government. So, there's a
31:09triple whammy there. There's an advantage for the farmer. You could raise the urea price. It might not
31:17have been done so far on account of the elections, but they should be raised for the reasons that I've
31:24just mentioned. And it could be done now. A crisis is also an opportunity. That's all I would say.
31:35Swamyakandi Ghosh, the inflation, the i-word, one of the things, one of the things that the Narendra Modi
31:41government has been conscious of in the last 12 years is to ensure that inflation is kept under control.
31:45Now, there are external shocks coming in. This is a supply shock, which almost seems to suggest that
31:51controlling inflation is going to be a huge challenge in the months ahead. Would I be right in saying that?
31:57Yeah, thank you, Razim. I think regarding the inflation, the most important point to note is that
32:04the wholesale prices actually adjust faster than the CPI, the headline inflation, which basically the RBI
32:11tracks for rate decisions. So at this point of time, the good thing on the CPI inflation, the inflation
32:19which we basically track is that food prices have stayed significantly benign for longer. And in fact,
32:25the data which was released last two days back actually surprised the market on the downside because
32:30everyone was expecting that it could be closer to 4%, but it actually came below 3.5%, indicating that the
32:36food price management of the center actually is playing out over the last year or so.
32:41And even the fact that the imported inflation, basically the pass-through from the exchange rate
32:46in terms of the higher input cost on the corporate margins, even though that is now 40% to contributing
32:51around 40% to 45% of the overall headline inflation. But my sense is that this price rise of
32:593 rupees, there may be some more price increases because the experience shows that these price increases are always staggered.
33:07In the past also, it has happened. So there may be more price increases. But my sense is now, if
33:12we take this
33:12only into account, it could add another 20 basis points to the headline inflation. Of course, inflation will go up.
33:18The Reserve Bank of India projection is 4.6. Some estimates are higher than that. But even if it goes
33:25to be, say,
33:265% or so, it will still be below the central bank inflation target. So basically, there is a scope
33:33for
33:34the central bank and the regulators to look through this cycle, hoping that there is an end to the war
33:40is imminent,
33:41given the way things have been moving out in the last two days.
33:47Well, we don't know whether there's an end to the war and that's imminent, because that is just one of
33:51the
33:51X factors. But Shankar Iyer, should we be concerned, particularly about inflation, the wholesale inflation
33:58hitting a 42-month high on April 6th, 8.3% and the possibility, as all of you are saying,
34:05of further fuel
34:06price hikes, how concerned should we be? Well, we should be concerned. And I think people are
34:13concerned even if there was no price hike, because across the country, people who are buying cylinders
34:19on black are paying much more than the official price. So that isn't factored in the inflation
34:25index. But more importantly, Rajdeep, we know that the gas produced from Qatar is down by 40%. It could
34:35take three or four years to restore. We know from the International Energy Agency that restoration of
34:43capacity across the Persian Gulf would take between 18 and 24 months. Add on this, the supply disruption.
34:52And then the price. So if you ladder up, you have an issue of output, you have an issue of
34:59supply,
35:00and you have an issue of price. Now, this will seep into the economy, however brave we might be
35:05about saying that, you know, we will do better. There is no, nothing unique about the Indian economy
35:12that it will not. The one good thing about the Indian economy is that it is not as dependent on
35:19crude oil. Just like China is around 18, 20% of its energy mix is crude oil. In India, the
35:25energy mix
35:25is around 25, 28%. Having said that, the critical energy we still import. We import 88% of our energy.
35:34So these things will happen. The other thing, Rajdeep, that hasn't got sufficient attention,
35:41is what might pass through after this great Beijing meeting, which I think is essentially as of now is
35:52he said, she said meeting. But what comes through in terms of what is concocted there, whether China will
36:02act on Iran, whether the US will restore its tariff, because Trump is sort of hell bent on putting the
36:11tariffs back. So all of these are all uncertainties that we have to watch out for. On the ground,
36:17people are already feeling the inflation. So it is up to us to sort of bring the data to align
36:24the experience.
36:29I'll come to what are the solutions. But but Neelkan Mishra, you know, the truth of the matter is,
36:35could we do anything differently? You just heard Professor Merotra suggesting that if you had to go
36:39in for a fuel price hike, maybe you had to do it a couple of months ago when oil prices
36:42were surging.
36:43We talk of oil being deregulated. Truth is oil is politically combustible. You couldn't do it
36:48before an election. So you suddenly remember austerity and and bring in a price hike after
36:54the elections. Could the government have done anything differently? Should it be doing something
36:58differently rather than panicking the market with this austerity drive and and possibly asking for
37:04savings, which could also affect growth? Could the government do something different is my bigger
37:08question. You're smiling. No, but see, everything takes on a political hue. The way I see it, maybe I'm
37:18my my prism is very different. See, the way I see it, everyone, including me, including the oil markets,
37:26including maybe President Trump himself thought that this was going to be a four week war. And
37:33it has lasted longer. You can see that the Chinese have panicked. See, no one knew till end of April.
37:39I
37:39mean, after the Chinese monthly trade data came out, that the Chinese were releasing three and a half
37:44million barrels a day of their own strategic reserves just to calm down the oil markets. By now,
37:49otherwise, oil prices would have been 140, 150. So there has been a big disruption. And I think if you
37:56start doing mark to market, I think from a conceptual theoretical perspective, yes, oil prices are
38:02deregulated. Maybe they should be allowed to move around. But imagine if diesel one day is costing 90
38:07and two weeks later is costing 150. And suppose the war was to end very quickly, which is what
38:13everyone's expectation was, including mine. I must say that by end of the middle of April,
38:19end of April, it ends. And then oil prices, diesel prices come down to 90. Now, how are people going
38:24to
38:24price bus rides, taxi rides, as Professor Marotra was saying, you know, vegetable prices? So if you
38:33think that is going to be a short-lived disruption, you cushion it by saying, I will use fiscal tools
38:39to
38:39protect the retail prices. And as you get clarity, you start allowing the price increase to happen.
38:46And I think that's a prudent thing, whether it was done only for political purposes,
38:51it was done for some nefarious designs. Should the government be doing growth or protect growth?
38:56I think it is unwise. As I said, I think the binding constraint is the dollar.
39:01I think there is…
39:01No, but why… But sorry to intervene… No, no, but sorry to intervene…
39:06No, no, but sorry to intervene, Neel Cutt. Why did the markets, for example, go down 3,400 points
39:12in the last four days? Why was the market spooked by what the Prime Minister said at that moment?
39:19Was the market not prepared for this? The markets globally are panicking. See,
39:25you see the 10-year bond deal in the US has gone up. I think the chances of rate hikes
39:30having priced in.
39:32That's the point, right? So you look at what the oil markets are saying. The oil markets were expecting
39:37that this would be a short-lived war. The current price, the dated Brent, which is the spot,
39:43Brent. So when you see the Brent price on screen, it is next month's delivery. But if you want something
39:49in the next two weeks, you pay dated Brent or the physical inventory. That premium had gone to $40
39:55in early April. Till two weeks back, it was $20. Last Friday, it fell to zero. So what people realize
40:02is that a lot of inventory is being dumped by China into the market to calm it down. But in
40:07the process,
40:07because it has depleted inventory, the March 27 price is now starting to go up. Now, when that happens,
40:15the whole of the financial market starts realizing that these oil price disruptions are not temporary.
40:20They are permanent or rather much longer lasting. In which case, everyone, everywhere, bond yields are
40:27going up because inflation expectations are going up. So the Indian market is also realizing with that,
40:33and of course, the trigger point may have been the PM speech, but the PM was, I think, acknowledging what
40:38the oil markets are saying, that this is going to be... You look at the Singapore PM speech.
40:42Right.
40:43He's talking about prolonged shortages. So the world is now realizing that this is not ending.
40:52You know, the fact is, there's the uncertainty over the war, Professor Mehrotra. You mentioned
40:58that diesel prices should not have also been brought up along with petrol prices. But the question arises,
41:04everyone is linking what's happening to the West Asia conflict. And to some extent, they're right.
41:08But in the context of the Indian economy, we've seen FII outflows even before the war. We've seen FDI
41:14in decline. The rupee, of course, has been depreciating. Some of these problems predate
41:19what happened, has happened in the last couple of months. And that's why I ask, I mean,
41:25under the headline numbers, is there reason to worry at all? Should we be sanguine about the state of
41:31the economy at the moment? So let me make a few points. You know, I
41:37take Nilkant very seriously. And we are listening to two members of the Prime Minister's Economic
41:44Advisory Council. And I'm actually very surprised by Nilkant's remark that he felt that the war is going
41:49to end soon. None of us who were following the war for the last two and a half months expected
41:55the
41:55war to end because I don't think most observers in India in particular have understood the motivations
42:01of Iran. We should expect Iran to see this through to its logical end, which means the US must leave
42:09its 15 bases and Israel needs to be chastened. I won't say more than this on this. Therefore,
42:16we have to prepare from this point onwards for these eventualities that this war is going to continue.
42:22Now, you're absolutely right that the decline in the rupee was continuing and that decline was
42:33appropriate for the following reason, as both Nilkant and I have pointed out in our writings, that
42:41the real effective exchange rate needed to depreciate and it did. And that's a good thing from the point
42:49of view of export. However, now in the last five, you know, the decline beyond 90 is actually gone
42:55beyond that point. It's not good that this is happening. It's going to definitely have an
43:00inflationary impact. So we have no choice in some ways but for the RBI to begin to intervene again.
43:08Okay. So, so much for that. The real point is that the reliance of the government on indirect taxes alone
43:19is not the way forward. If it is going to feel a fiscal crunch, as it really is, first it
43:28needs to
43:28remind ourselves, we need to remind ourselves as a nation that the government has benefited from a
43:35windfall gain compared to the previous government of roughly 30 trillion rupees, 30 lakh crores,
43:42because oil prices have been in the region of 60, 70 dollars a barrel over the entire 10-year period,
43:49except in 2022. So the trouble is that if we had managed the fiscal little better, you know, until now,
43:57we wouldn't be in this situation. So that's one thing. And therefore, we cannot be in a situation
44:03where we don't use direct taxes. We are now in a situation where if we want to reduce our fiscal
44:09deficit, we need to think about some changes, some tweaks on, you know, surcharges on high net worth
44:19individuals and dollar billionaires on their net worth. We have to think about, you know, new types of
44:24direct taxes, because we've already cut CIT, we've cut PIT. How much? We cannot continue to do that.
44:31We've already lost about 3 lakh crores per annum on account of the CIT plus PIT cuts in 19 and
44:3825. So,
44:39you know, we've got to think a little bit, you know, more broadly. Okay. So let's come therefore to
44:49solution. Swamyakanti Ghosh, what's the solution? Going ahead. Since you are part of the Prime Minister's
44:53Economic Advising Council, what would you advise? What is the road ahead? It can't be surely making
45:00statements that perhaps panic the markets and spook many individuals. What is the way ahead in terms of
45:05policy? No, I think, say in terms of the policies and before I start, I think, let us be very
45:13clear
45:14that in the month of March also, the government had cut the excise duty on rupees so as to cushion
45:20the impact on the ONC. So that was the first upper step. Now they have passed on the cost increase
45:26to
45:26the consumers. So there has been a continuous step. Now, having said that, what are the solutions?
45:31Because the first thing I think is already has been laid out on the table to address, to cushion,
45:38and to save foreign exchange deserves. So I think the first of the step has been announced, I think,
45:43couple of days back on import, increasing the import duty on gold and silver. That is likely to cushion
45:49some of the imports of gold. I think gold imports, actually gold and petroleum imports are 33% of the
45:55India 720 billion imports. So which is basically close to 200 billion. So even if we can save around
46:015 to 10 billion over there, that's first thing. The second thing which the government actually,
46:06the central bank and the government could contemplate is basically there is a limit on
46:10the liberalized LRS scheme. Basically, which means that an individual can remit 2.5 lakh dollars per
46:18year. If you remember in 2013, that limit was brought down from 2 lakh dollars to 75 thousand dollars.
46:25So as to allow that, so as to ensure that this spending is not transmitted outside the country,
46:33and that could lead to conservation of products and reserves. So that could be one of the options,
46:37but that option also has to be done very delicately, because that could also give out a signal that we
46:43are trying to save too much. The third option basically already has been discussed, basically,
46:48trying to bring back the portfolio investors. Interestingly, I think, Rajiv, the most important thing is that the
46:54depreciation and the value of the rupee actually has been significantly against India's macro
46:59fundamentals. Last three years, growth rate was 7.3%. We started this crisis with a growth rate of 7.6
47:06%
47:07last year. Inflation was at 4%. Banking sector profitability were close to 4 trillion. I think
47:13any number you put on the table, this number did not suggest that the rupee should depreciate so,
47:18I mean, so significantly. So possibly one of the reasons is basically the portfolio capital
47:23investors actually has been significant outflow in the first five months of this year, close to 22
47:29billion portfolio capital outflows, which was last year was around 11.5 billion. So I think we need to
47:35bring back the foreign investors. So for them, you try to make some concession in this tax structure,
47:40which is already there and to encourage and also on the FDI flows, if we can make some concessions in
47:47terms of some reforms in the sectors. So it should be a combination of addressing the fiscal and also
47:53trying to conserve the foreign exchange reserves at the same point of time.
47:59Okay, I just have a couple of more minutes. Shankar, your prescription,
48:02what should the government be doing? You're always full of ideas. What's your big idea?
48:09My opening message would be, please don't chase pennies and miss the pounds. All these ideas,
48:16going on motorcycle, going halfway, cutting LRS, all of this is not going to, I mean,
48:23it's like trying to move the elephants. The real issue that India faces, and it has always faced,
48:29is that we consume more dollars than we earn. And then to earn those dollars, we have to produce
48:36enough in rupees to pay for that. Every crisis in India on economic crisis is around the rupee and
48:44the dollar. Here are two things that I would say. One, the government of India is sitting over about
48:5215 or 20 lakh crores worth of PSU. Bundle them, put them up, list them, get foreign investors to get
49:01interested. Second, the monetization of real real estate and infra assets hasn't gone anywhere.
49:10Nirmala Sitaraman, the finance minister mentioned that they're going to put a list of 16.72 lakh crores.
49:17Why not ask all these to be put into a fund? List it in India, list it abroad, get the
49:25dollars. Third,
49:26India needs townships. India needs new cities. Why not ask foreign developers to come and set up
49:36100 townships in India, solar powered, Wi-Fi powered, name it, smart city, whatever the hell you want to
49:43call it. And those dollars, see, India needs houses, India needs dollars, India needs mass employment.
49:50So, all the chief ministers, instead of... For that, you're going to have to bring ease of doing business.
49:56You cannot, for, for, but for that, you're going to have to really make ease of doing business from
50:02a slogan into actuality. Speak to any foreign investor, they still struggle. Let's, you know,
50:07all these sound very nice in a TV studio, Shankar, with due apologies. When you actually speak practically
50:12to businessmen, they continue to tell you, many of them is, are actually looking for other alternatives
50:17to invest to India, even Indian businessmen. In my 40 years of writing Rajdeep,
50:25whatever I have written comes to play in 10 years later. I said, open up insurance 100%. I said that
50:32in 1997, it got opened in 2070. It was actually a Sinha to Sinha reform. Because Yashwan Sinha opened
50:39it first and then Jayan Sinha opened it. I said, list State Bank of India, there was a great interest
50:45to it.
50:45I said, list LIC, there was a great resistance to it. I said, create solar kilowatt hour rooftop project,
50:52there was a great resistance to it. Because the Babudam wants to chase status quoist pennies project.
51:00You have to move the needle if you want to be a 10 trillion dollar economy. Otherwise, you can
51:05kill Asia, accumulate, ha, ha, ji, ha, ji, ha, ji. You can't make an omelette without breaking the eggs,
51:11let me leave that as a one-liner. It takes a crisis for us to discuss the economy seriously. And
51:41I think
51:41those challenges also provide an opportunity. And that is really what we can hope for. That this challenge
51:47that has been posed by this West Asia conflict also provides opportunities for the Indian economy. Let's for our
51:54change, end on a hopeful positive note. And of course, tighten our belts. I certainly have done that by working
52:02from home and doing this program from home today. Thank you all very much for joining me on the show
52:07tonight. Thank you to all our viewers for watching. Namaskar. Goodbye.
52:12Check it out.
Comments