00:00And joining me now is Surjit Bhalla, a prominent Indian economist, author, columnist, and former executive director for India at
00:09the IMF,
00:10who has also served as a member of the Prime Minister's Economic Advisory Council.
00:15Professor Bhalla, your column in Indian Express is trending, and the headline perhaps has forced many to read,
00:22which actually read, the BJP is winning elections but losing the economy.
00:26So let me quote that article in my first question itself.
00:31You are noting in that article, Professor Bhalla, that under BJP rules since 2014, India ranks 9th in GDP growth
00:40rate,
00:418th in per capita GDP growth, and 16th in per capita USD growth at just 4.7% annually, which
00:49is behind Bangladesh and Ethiopia.
00:50What specific policy decisions since 2015, sir, do you believe are most responsible for this relative underperformance compared to other
01:02economies?
01:05You know, most what I've looked at and tried to really identify as to why we were relatively growing much
01:15slower than our own expectations and in comparison to the other countries.
01:21So first, let me point out why the U.S. dollar growth that you cited, that is there in my
01:28article, is the most relevant, not GDP in real terms or whatever,
01:34but per capita GDP in U.S. dollar terms.
01:38Because, you know, our ambition, publicly announced in which there have been conferences all the time, is that we will
01:46become Vixit Bharat, which is a developed country by 2047, a rich country by 2047.
01:55That's all defined in U.S. dollar terms.
01:58So I just want to make clear that the reason what you read out, absolutely correct, that's the most relevant.
02:06Now, to your next question, or to your question as to what can be responsible or what I think is
02:15responsible for our bad showing in U.S. dollar growth.
02:19Now, as everybody recognizes, this is age-old.
02:24This is not new.
02:25This is not rocket science, that investment is a major determinant of growth.
02:33Now, since 2014, average total investment to GDP ratio in India has stayed around 32%.
02:45So that's good.
02:47However, however, the mix of private and public investment has really diverged.
02:55So public investment, that's your infrastructure investment, et cetera, has grown, has increased by about five to six percentage points
03:07of GDP.
03:08So the constant 32% is obtained because private investment has gone down by the same amount, five to six
03:18percent of GDP.
03:20So the problem, now we can go into why private investment has gone down because public investment, infrastructure, et cetera,
03:31we all know its positive effects.
03:33We all have seen it.
03:35That's worked really well.
03:36But it's the private investment that has not worked at all well, and we need to ask why that is
03:44the case.
03:45So, Professor Bala, walk me through what you call the macroeconomic paradox.
03:52Contained inflation, manageable current account, steady growth, strong political stability.
03:58And yet, the rupee lost roughly 12% last year, among the worst, I would say, in Asian currencies.
04:08So tell me, what are the deeper structural forces the headline data is obscuring, and what would it actually take
04:15to build a durable currency resilience?
04:22So, first, I want to point out, since you ended with currency resilience, that I personally don't think that the
04:31currency is in a weak state.
04:34It is weak, but there are no reasons for it to weak.
04:38As you correctly mentioned, you've got political stability, reasonable growth, everything else.
04:44So the currency shouldn't be where it is.
04:46So why is it?
04:48And the reason it is there is because foreign investment are rules against foreign direct investment,
04:58which, mind you, is the first lesson in Econ 101, is that for a developing country, FDI is the best
05:07possible contributor to growth.
05:10Why?
05:10It brings in technology.
05:12It brings in supply chains.
05:14It brings in know-how.
05:17And therefore, you advance to the advanced country status by having this modern technology.
05:25Now, this is every country in the world that develops, every poor country in the world that develops, goes out
05:34of its way to get FDI.
05:37India was doing the same until 2015, when we brought in what we call the model BIT ruling, or law,
05:49or framework, which is bits.
05:53And that is the ruling that bilateral investment trade, BIT, and that ruling was initiated in 2015, which said that
06:08we put in a lot of constraints on foreign investors to invest in India,
06:15such that these were much more onerous or very bad, so they all said, okay, you want to play a
06:25game this way?
06:26I'd rather go to Vietnam or Mexico or there are thousands of other places to go to.
06:32And that's what they did.
06:34Now, we keep claiming that we are such a big market.
06:41We are not.
06:43The size of our GDP is less than that of California.
06:50So, the foreign investors do not feel, foreign direct investors, I'm not talking about portfolio investment.
06:58Perhaps we can talk about that some other time.
07:00But I mean direct investment goes somewhere else.
07:05And they did.
07:06So, one ruling of economics is that investors and voters and everybody else votes with their feet.
07:15That is to say, they go where the opportunities are the highest.
07:22So, let's talk about BIT, because you were referring to it.
07:25So, Professor Bhala, the 2016 BIT revision introduced cooling off periods, as you were talking about,
07:31and mandatory local remedies.
07:34The quality control orders have multiplied sharply.
07:38Net FDI has turned negative.
07:39Is this a coherent, if debatable, philosophy about investment on India's terms?
07:46Or is it policy drift that nobody has fully thought through?
07:51And what would genuine course correction then look like?
07:58Yeah.
07:59So, let me answer in reverse.
08:02What would genuine reform look like?
08:06Go back to whatever we had pre-2015, which, mind you, is what the entire world has.
08:14Okay?
08:15We were following the entire world in our constitution, in our design of FDI.
08:23Everything was working smoothly.
08:25And did.
08:27Until we came up.
08:29And that's where I think a lot of research has to go into.
08:32And I think we lost some cases, Vodafone, etc.
08:37So, the government felt that the foreigners had too much.
08:40I don't know.
08:41I mean, this is a genuine puzzle for me.
08:44But part of the puzzle is answered by the belief that people will come rushing in
08:51because we are such an attractive market.
08:55And the reality is we are not.
08:58So, the new BIT legislation, which was two things about it.
09:05It was introduced in 2015.
09:07And it said that if you enter into India, then if you want, the foreign investor wants to leave,
09:17wants to have a divorce with her Indian partner.
09:20And this happens all the time in the entire world.
09:24Then you are forced to stay together, to live together for five years.
09:31And then you go to an Indian judge in order to get the solution.
09:37So, five years.
09:38You have to cool your ears.
09:40Now, no one is willing to accept that.
09:43Second, so, the finance minister realized the problem with the BIT legislation last year in 2025.
09:52So, in her budget speech, she said that we are taking a revised look at the BITs framework,
10:01the very one that I just talked about, the one that is causing the problems.
10:05And, to date, they have set up committees, etc.
10:11We don't have any idea what the new BITs framework would be.
10:16Except there are rumors that instead of five years of cooling off, it will be three years of cooling off.
10:24That is not good enough, I'm afraid.
10:28We are not unique in the world.
10:32We are not that attractive.
10:34And people are not that desperate to get into the Indian market, given its small nature.
10:41Okay.
10:42Sir, you criticize the government's preference for band-aid
10:46instead of performing the surgery needed to make investment in India
10:51by Indians and foreigners alike more attractive.
10:55So, what are the top two or three surgical reforms you would prioritize right now,
11:03especially leveraging the current West Asia crisis?
11:11First and foremost, say that we have experimented with the bilateral investment treaty.
11:20We are going back to whatever existed prior to 2050.
11:25That's number one.
11:27So, that's very simple to do.
11:29We've had all governments in India, BJP and others, had that same framework.
11:35We are going back to that.
11:37Second, our taxation levels for foreigners are huge.
11:43So, I would decrease, basically, if a foreigner comes in, that there is a tax, preferential tax
11:53treatment for them for three years.
11:55And at the end of three years, that whatever money they've got, they are making and they
12:01can stay.
12:02So, I would change.
12:05So, taxes are often used for providing incentives.
12:10So, I would provide incentives to invest in India through taxation and through liberalization of the bits.
12:21Then, so, everybody, so, not only the foreigner feels comfortable, but also the domestic investor.
12:29Remember, it's a two, you know, domestic investment, private investment.
12:34I agree.
12:34Plus foreign investment is what makes for total investment of the private sector.
12:39And I think the private investors in India feel very constrained that some, tomorrow, some political decision, export
12:50bans, for example, and various other such, you know, legacy that we have for the last 70 years, that we
13:01should
13:01recognize, so, we need to get with it, with what the modern world is demanding of every country.
13:13So, lower taxes, back to bits, and ease of doing what is called, and well recognized, ease of doing business.
13:24Which means, there's predictability in government, so, you know, this retrospective taxation has to be banned forever.
13:35We should never, ever consider, so, we should come out with a statement, we will never, ever introduce retrospective taxation.
13:44Whatever the law is, that's what it'll stay.
13:47We won't go back to what it was 10 years ago, or whatever it is.
13:52Sir, last, last couple of questions.
13:54You don't have to do a question.
13:56It's basically what we have done before.
13:58Okay, last couple of questions, Professor Bhala.
14:01And I'm going to talk about the title of your column, The BJP is Winning Elections and Losing Economy.
14:08You have argued that it's time to retire the fastest growing major economy label.
14:15The BJP now commands, that is a fact, the kind of electoral dominance that creates space for politically costly reforms,
14:23or equally removes the incentive to attempt them.
14:27Based on what you have seen from inside the policy process, because you are an insider, Professor Bhala.
14:37I was at the IMF, but yes, I have been wanting, and whenever the occasion was, I would offer my
14:46advice, absolutely.
14:48Yeah.
14:48Okay.
14:49Go ahead.
14:49Okay, so let me ask that question again.
14:52You have argued it's time to retire the fastest growing major economy label.
14:57The BJP now commands the kind of electoral dominance that creates space for politically costly reforms.
15:03Or would you say then it also removes the incentive to attempt them?
15:07There are two ways of looking at this.
15:09The kind of hegemony that they have.
15:14So, look, the, first of all, the fastest growing economy, I mean, is just factually incorrect.
15:23And we should, you know, it doesn't help either the government or anybody else that we are continuing to say
15:31we're the fastest growing economy when we are not.
15:34Then we come to the electoral dominance.
15:36And that is a well-earned, the BJP has earned, has got, remember, this, we are democracy.
15:45People are voting for the BJP.
15:48So, this is something that they should be very proud of, that people are willingly going out and voting for
15:56them.
15:56Fantastic.
15:57Now we come to the problem, what I think is a problem.
16:01So, maybe the fact that the BJP is winning practically every election and is popular and is popular with the
16:11people,
16:11maybe that has lulled them into a comfort zone that they don't believe or they don't think that they have
16:21to do anything for the economy
16:24because who else are the people going to vote for?
16:28So, this is also, if you will, a condemnation of the opposition that the people don't think that the opposition
16:38has anything to offer.
16:41Maybe they are right.
16:43So, BJP recognizes that they are at least delivering political stability.
16:49They are providing some progress.
16:54The GDP is growing at 6% per annum, which we have done for the last 31 years.
16:59So, why rock the boat?
17:02So, everybody is very comfortable.
17:04It's my attempt at an explanation as to why we are not getting the reforms that we should be getting
17:13and that the BJP itself has promised from time to time.
17:19So, what is preventing them from bringing out the reforms that they themselves have advocated?
17:29Take, for example, farm laws that they advocated and have forsaken since 22.
17:38Land reform, land acquisition, and then the last and perhaps the most important reform at present, a trade deal with
17:49the U.S.
17:50So, why aren't they energetic about a trade deal with the U.S., which will help us more than anything
17:58else?
17:58Because that will open our markets and will discipline our own institutions to participate in the world.
18:08And that's not happening.
18:11So, these are not easy fixes, but they're not difficult either.
18:18Okay.
18:19So, they can, by a stroke of a pen, say we go back to whatever was existed before 2015, as
18:27far as foreign investment is concerned.
18:29We open up a trade deal with the U.S., as we promised, and we continue to promise.
18:36And we lower taxation for foreign investors, which is, you know, our tax rates are very, very high.
18:44And we do ease of doing business.
18:49All right.
18:50Sujit Bhalla, pleasure speaking to you, sir.
18:51Thank you so much for joining us and sharing your thoughts.
Comments