A little over two years ago, ahead of the presentation of the Union Budget 2022-23, Dr. V. Anantha Nageswaran was appointed as India’s Chief Economic Advisor (CEA). Prior to that, he taught at several business schools and institutes of management in India and Singapore. He was the Dean of the IFMR Graduate School of Business and a distinguished visiting professor of Economics at Krea University. He was also a part-time member of the Economic Advisory Council to the Prime Minister of India from 2019 to 2021. He holds a Post-Graduate Diploma in Management from the Indian Institute of Management, Ahmedabad, and a doctoral degree from the University of Massachusetts in Amherst.

Since his appointment, Dr. Nageswaran has emerged as the source of ideation and articulation of the union government’s economic policies.

NRI Focus interviewed him on the sidelines of a conference in Singapore. The chief economic advisor took some time off his busy schedule to dwell on the outlook for the Indian economy, the growing role of NRIs as a cohort, and the rapid socio-economic transformation of India. Edited excerpts from the conversation:

Q: A raft of new data was issued recently by the government. This includes the latest Q3 data on India’s gross domestic product (GDP). The 8.4% growth belied all analyst expectations. Were you also surprised?

A: We were not surprised, though a bit pleasantly by the magnitude of the number. But we did not doubt the vigour of the economic growth. In fact, I remember very well saying that the growth data will be revised higher. We know that now, say for example in 2021-22, the growth rate was 9.7%, instead of 9.1% as reported earlier. So I think we were convinced about the pace of recovery, and the sustenance of magnitudes. Nobody can say that we anticipated this magnitude. Yet, we are not surprised by the strength of the recovery.

Q: So it is not out of whack?

A: No, certainly not. On the contrary, I will even say that sometimes we do not really comprehend the lag effect of so many things that have been put in motion since 2016 – policies like the IBC (Insolvency and Bankruptcy Code), GST (Goods and Services Tax), etc. And then when shocks like the COVID-19 pandemic and the Ukraine-Russia war, which caused oil prices to spike, start to fade away, the lagged effect of those things in transition come through in full force. And, we don’t fully account for them. That is why we get taken by surprise when we see the magnitude. But then if you really understand that these things operate with a lag, and there is a pent-up effect that works, then you would not be surprised.

Q: It is then unlikely that this momentum will be lost in the final quarter. Which means the 7.6% growth projection for 2023-24 will have to be revised upwards?

A: I think so. Obviously, it is very simple math for people to back out the fourth quarter number, if 7.6% is the current estimate by Mospi (Ministry of Statistics and Programme Implementation), and then you have more than 8% for the first three quarters, then naturally the number falls out to be somewhere around 6% for the fourth quarter, which signals a big drop off in momentum. I don’t think that’s going to happen. But what you must remember is that Indian quarterly GDP data is not seasonally adjusted. So you can have a situation. That is why we kind of step back from doing quarter-on-quarter analysis and look at some of the broad trends. But if you look at even the quarter-on-quarter trends, the momentum is there. So I think that the 5.9 or 6%, which is now a default residual that we are calculating, is unlikely. It will be more than that.

Q: To sustain this growth trajectory, a key factor will be the kickstarting of the private sector capex cycle. So far the government has held up capital expenditure. Do you see that happening?

A: It is actually happening. The thing is that we did have two years of private capex declining in FY (financial year) 2020. That was even before the pandemic; of course, we had two months of pandemic effect (in the year). But even then it was the effect of the IL&FS (Infrastructure Leasing & Financial Services) collapse and private sector balance sheet repair. FY 2021 was definitely the pandemic effect. So you had two years of contraction in private capital formation. Now it has come back in FY 2022 and FY 2023. The Capital Line database shows that. Similarly, Axis Bank put out capex by the listed private sector. And they look at some 3,300-odd companies and the number is rebounding. I got this independently verified by similar data for BSE 500 companies. Again, there is the same pattern: Two years of contraction – FY 2020 and FY 2021 – and a smart rebound in FY 2022 and FY 2023, continuing into the first half of FY 24. So, it is happening. Can we improve even further? I think there is a possibility but also feel we have not fully seen the investment rate pan out in the manufacturing sector. That should happen. Private sector capital formation is a train that is already in motion. It must, it can, and it will accelerate further.

Q: Another bit of data are the numbers released by the NSSO (National Sample Survey Office) on consumption in rural and urban India. They signal a pivot away from food to consumer durables as disposable income grows. Are we beginning to see the inspirational economy finally taking root in India?

A: Well, yes, because we are probably heading towards becoming a $3.7 trillion economy by the end of the current financial year (2023-24). And you have a per capita income that is roughly around Rs.2 lakh per annum. It is natural. We have seen this in other countries across the world. As your income levels rise, food is something that does not grow proportionally. Also, if you had taken into consideration the imputed values of some of the free transfers, the share of food will fall even further. So in that sense, it is going to open up space for more discretionary spending on the part of households.

Q: How has the government’s focus in enabling saturation in access to basics like banking, electricity, toilets, cooking gas and so on, played into this trend?

A: Obviously, econometric cost and benefit analysis has not been attempted. But these things are definitely playing a big part even though some of them may not be easy to model. As you gain financial independence and the ability to access credit, even the behavioural change it brings about in your attitude, like self-confidence, cannot be quantified. So, you have capital productivity and labour productivity. There is a lot of work on capital productivity, with physical infrastructure. Labour productivity will improve if we are now going to focus a lot on skilling higher education and learning outcomes. That is not only the key to realising the demographic dividend, but also for sustaining this level of growth.

Q: The growth in consumption numbers will obviously have a salutary impact on poverty reduction. Is it time then to retool policy priorities?

A: You must raise aspiration levels. You can now think of targeting poverty, not just in this very abject or extreme poverty as they call it. What if you look at ensuring that Indians have a PPP (Purchasing Power Parity) consumption of $3 in rural India and $4 in urban India. If that is your benchmark, what is the percentage of the population that lives below that kind of consumption. Abject poverty measured at $1.9 PPP, you are now saying is 2% or 2.5%, whatever. But if the metrics are raised, maybe the poverty rate is 20% or something, right? We have to target that. So, I think that is how we kind of keep raising the thresholds we need to cross.

Q: Those who come out of poverty, how do you take them to the next level? Because they have big handicaps?

A: I think it ultimately boils down to people’s access to opportunities. And then it is about how people make the best of this opportunity. We must keep opening doors. Which is what the government has done. Now IITs are no longer exclusive to a few metros. Similarly, you have more institutes of management, and engineering. Further the Confederation of Indian Industry together with the US-based testing services has started conducting national employability tests. I believe the way we integrate people is also by taking growth to rural India. And that is where digital and physical connectivity are going to play a big role in India.

Q: We are seeing a sharp uptick in remittances in the external sector. In the last three years it has grown from around $80 billion to $125 billion. And the World Bank projects that this will grow to $134 billion this year. What has changed in the last few years to trigger this dramatic growth?

A: A good question. I would not want to answer you without having looked at the dynamics myself. So, I would like to do that first before answering.

Q: I asked this question in the larger context of the growing importance of non-resident Indians (NRIs). There is a sea change in the perception of this cohort. They were lampooned in the aftermath of the 1991 crisis for emptying their FCNR (Foreign Currency Non-Resident Account) accounts. Today, they are celebrated. How do you as a policy person see NRIs? A soft power or a hard power asset?

A: I think it is (an asset). I say so because until very recently, I saw myself as an NRI. So, I couldn’t have been a burden or liability. I think it was always the case that a vast majority of them on balance were net positive contributors to the Indian story. Whether it is an intellectual contribution, or remittances or investments, or whether it is in real estate or financial assets, etc., or venture capital, I think there was always a net positive contribution. And, if anything, as the Indian diaspora in several countries in the world end up having a per capita income – which is about their country’s national averages – their contribution is going to really increase both intellectually and financially. So, I definitely see the diaspora as a source of strength to India, rather than a source of concern.

Q: Now, we are at the beginning of a general election cycle. Which means we are looking at a caretaker government in the next three months, technically. What are the kinds of policy priorities for the new government when they take charge this May?

A: The Finance Minister’s Budget speech did largely spell out the policy priorities. She spoke about the MSME (Micro, Small & Medium Enterprises) sector, the financial sector architecture for the next 30 years, the green transition, the overall regulatory framework — whether they are principle based or prescriptive — and that applies to both financial and non-financial sectors. These are all the priority areas she kind of hinted at towards the end of the budget speech. So, that will provide the starting point for policy discourse and decision-making in the new government.

Q: The last meeting of the Union Cabinet talked of ease of living as a policy priority for the future. Will this extend to everyone, including NRIs?

A: I cannot probably speak about the details or the elements of it, but it would automatically encompass some elements, at least for non-residents. If some documentary or procedural requirements, and taxation, are eased, I am sure some of it will spill over in a positive way for NRIs as well.