Duvvuri Subba Rao, Former RBI Governor, says “we have to grow fast because as much as we are a large economy, we are also a poor society. India has by per capita income, we are about 139 in the League of Countries. We are the poorest country in the BRICS. We are the poorest in G20. So we have to lift poverty. We have to grow fast. Compared with the rest of the world, it is good but that is not good enough. I believe that for India to grow faster, we want a stable geopolitical environment and a stable environment around the world because if you look at India’s performance over the last 25 years, India has had stable high growth when the world was growing.” Everybody is applauding the kind of growth we are seeing. Several agencies including our own RBI Governor have upgraded the India growth outlook very recently in the last Monetary Policy Meet. But the overall global environment is not in very good shape. How challenging will it be for us as an economy to outperform a global gloomy backdrop?Duvvuri Subba Rao: Thank you for that question. We heard it from a number of people including the Prime Minister and the Finance Minister that India is the fastest growing large economy in the world. As you said, the RBI expects the economy to grow by 7 plus percent this year. That is all very good. But you also referred to the global situation. The point is that, yes, we must grow faster. But I do not believe the global situation is a good comparator because we are a low-income economy. So we have to grow fast because as much as we are a large economy, we are also a poor society. India has by per capita income, we are about 139 in the League of Countries. We are the poorest country in the BRICS. We are the poorest in G20. So we have to lift poverty. We have to grow fast. Compared with the rest of the world, it is good but that is not good enough. I believe that for India to grow faster, we want a stable geopolitical environment and a stable environment around the world because if you look at India’s performance over the last 25 years, India has had stable high growth when the world was growing. So to believe that India can continue to grow even as the world is not subdued will be misleading. We have to grow fast and we are growing fast today because we are catching up on growth. But we also want the world to grow faster in order for India to maintain its growth momentum.
You make a very valid point that we will have to face and overcome a lot of global challenges to achieve our ambition and, of course, the momentum of superior economic growth. The current political leadership and a few other business leaders we speak to every day on our channel, talk about the ambition India has undertaken to continue this, on the back of reform momentum and amazing regulatory environment from the Central Bank as well to become a fully developed economy in the next 25 years. What will we have to undertake to have superior growth on a prolonged basis so as to achieve that ambition?
Duvvuri Subba Rao: Yeah, to put your question in perspective, we are the fifth largest economy in the world today and the Prime Minister at the Vibrant Gujarat Summit said that we will become the third largest economy soon and that we will, maybe a plus or minus one year, we will overtake Germany and Japan and become the third largest economy probably in the next five years. But as I said earlier, we are still a poor country. We want to be a developed country by the time of India’s independence in 2047 and there are some estimates that in order to become a developed country, we need to grow at about 7.6% or 7.7% consistently for the next 23 to 24 years because, and our track record shows India has never ever clocked growth of over 7.5% for three consecutive years.
So we need to grow rapidly and maintain a rapid growth rate like China did and I think we need to focus on two things as we go forward. Not only do we need to grow rapidly, we need to ensure that the benefits of growth are widely shared and for this we need to look at inequalities. You know, we used to learn in economics that economic growth actually trickles down but we now know that economic growth actually trickles up and inequalities are widening across the world and within India.
The World Inequality Report said that India is one of the most unequal societies in the world and inequalities are not just morally wrong, politically corrosive, they are also bad economics, particularly in the Indian context because for us to grow, we need to focus on the bottom segment because if their incomes improve, they will consume and if they consume, they will demand more, will produce more, will generate more jobs, will get on to a virtuous cycle.
So I believe we need to focus on reducing inequality and the second thing we need to focus on is job generation. Unemployment rate is 8% or 10%. We do not have accurate estimates and youth unemployment is as high as 40%. So we need to focus not just on accelerating the growth rate but we need to generate job-intensive growth. So we need to focus on inequality and on generating jobs in order to ensure that we become a developed country by 2047.
We have seen a host of reforms initiatives taken by various ministries and there we also speak about some early signs of capex recovery, the kind of a capex momentum, early signs coming in from business leaders as well. What else would it take in your view in terms of specifics, what direction would policy makers and business leaders both have to take to move towards that goal? Of course in the medium time, more medium term also reap benefits of a much more prosperous economy?
Duvvuri Subba Rao: Yes, I wish I could be original on this but India is such a heavily researched country, India is such a heavily commented upon country that I cannot say anything new on this. Yes, like you mentioned, increased public capex is a good thing. We are building infrastructure which is productive capacity for tomorrow, but we need private investment to take on and private investment remains subdued for the last 10 years because of balance sheet problems etc., but even today after the balance sheet problem has been largely addressed, private investment is not picking up.
So we need domestic private investment, we need foreign private investment to come in, we need structural reforms, we need governance reforms, we need to improve our education and health, we need to improve our skills. So we need to work, it is going to be transitory, but in the event it proved to be quite a monster for over two years, they have been struggling with inflation. We in India have struggled with inflation, the Reserve Bank has done an amazing job in bringing down inflation within the tolerance ban but it is still above the midpoint of the band. So as much as central banks have done their job in taming inflation, there is still concern about when they can actually declare victory.
