A panel discussion took place at the Observer Research Foundation on the topic “India’s Great Slowdown: What Happened? What’s the Way Out? by Prof. Arvind Subramanian, who teaches at Harvard University and is a former Chief Economic Adviser to the Government of India, along with Ila Patnaik, professor at NIPFP and a former Principal Economic Adviser to the Government of India. The panel was chaired by Mr. Kanchan Gupta, who is a Distinguished Fellow at the ORF. This panel discussion couldn’t have come at a better time when India is facing a serious economic crisis and the nation is in dire need of innovative solutions to come out of this problem.
The discussion was opened with a brief introduction of the panellists by Mr. Kanchan Gupta and then the floor was handed over to Prof. Subramanian, who began his presentation with a note of thanks for inviting him for the first time to ORF. The professor talked about a lot of topics concerning the Indian Economy, starting from the 2008 global meltdown and the repercussions of it which are still being felt. He said that since then there has been a gradual fall of all the major macro-indicators which has fallen nearly ten to fifteen percent. All these are having a very negative effect on the economy
He also made a comparative analysis of the 1991 financial crisis long with the present one, and said that we were much worse then, when our growth was just near to one percent. However he warned not to be too optimistic about it and said that important reforms are urgently required. The downfall which we have been witnessing now may not touch the precise numbers which was prevalent then, but the trend is reminiscent of the 1991 crisis, which is very serious. He also mentioned about the political response to the crisis where he said that even if the government is responding to the situation with tax cuts, privatization and also the RBI slashing interest rates, the results have been minimal. Therefore as per his statement the resp0nse is there but the results have not come into fruitition.
Prof. Arvind Subramanian also talked about the important debates which have been taking place regarding the present slowdown. He talked about the structural debate that has been growing regarding the land and labour reforms, rising inequality and also the political ones where critics have mentioned the growing faults of governance and then the over-centralization of power which have taken place.
He talked about his own hypothesis that the slowdown is both structural and cyclical. The twin balance sheet problem and then problems emanating from it were also mentioned about. There was also a discussion on the importance of fixing the agriculture system which plays a very important role in the Indian economy. He also talks about the importance of having a proper data system which gives us a clearer view of the major factors of the economy such as unemployment, poverty eradication etc.
The floor was then given to Ila Patnaik, who opened the conversation on a pessimist note on the worsening situation of the economy and how the GDP growth and other indicators are going to fall in the coming days as well. She mainly delves on the financial aspect of the economy and how we have always been risk averse in regards to reforming the financial sector. She talks about the 1991 reforms which happened and there the government reformed the real sector but didn’t touch the financial sector, due to which the banking sector began to be dominated by the public sector.
Prof. Patnaik also said that the financial sector represents the “brain of the economy” and allocates resources to all others and therefore bringing changes to the sector is urgent. She vouched for providing more licenses to the private sector banks and also bringing in a proper regulatory eco-system. Moreover a vibrant financial sector can only develop as per her when there is “competition in the banking system” and “competition with the banking system.”
She said that only by bringing the required changes in the banking sector can we turn Bombay or Delhi as the financial hotspots of the world along with Singapore and London. She tells we do have the required expertise and knowhow for this achievement and only the political will is required to implement the plan.
The chair of the panel Kanchan Gupta also contributed his share of discussion by asking some important question as to how more money can be generated to push it into the system. He said that due to the present crisis there doesn’t seem to be more money with the government to back some important reforms. He also talks about the Financial Resolution and Deposit Insurance (FRDI) Bill, and said how it was a very badly drafted bill and created panic among the citizens of their money being snatched away for propping up new banks.
The discussion was really an eye-opener for all the people who participated in the discussion. It gave us a view of the present state of the Indian economy, the financial crisis which happened in the past and also what needs to be done to bring changes and put the country back on track. The conference was both exhilarating and satisfying.
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