The Exchanges

Q Okay. And what do you mean by it? Let's take some analogies.

A So for example, if you look at the latest number that came out just now for the second quarter, which is the July to September quarter, Um, of the financial year, it, you can see that we grew at 7.6% year and year. That's a massive real growth. Um, in nominal terms, it's even higher. And then you also had, um, you know, the industrial sector in particular, the construction sector is growing. So these are solid numbers coming through and it is happening without any help from exports because exports are actually mostly flat. Uh, they had grown in the previous year, particularly services, but now they are flat. So without the benefit of a global environment that is expanding, we are managing to hit, for the full year, we'll probably hit something like seven percent. That's a really solid growth rate. Easily makes us, us the fastest growing economy in the world. And very importantly, we are doing this without stressing the macros of this economy. So there is no spike in overall inflation. Yeah, tomato prices may go up and come down, but there is no sustained inflation. Similarly, our external account, our current account, our trade balance, et cetera, they're not blowing up in any which way. Uh, we have six hundred billion dollars in foreign exchange reserves. So we, you know, the, the external sector is not under stress. Our banks, as we have discussed before, they are in decent s…

AI assessment note: “It's, it's like we are jogging and doing the seven percent.”

Q We are going to discuss your paper, you know, that you have published recently, relative economic performance of Indian states from 1960 to 2023, 2024. Uh, uh, first of all, uh, uh, what, what was the intention of publishing this paper? Uh, what did change do you want to have through this?

A Well, the paper that you're, uh, referring to is about the relative performance of Indian states. Uh, going back to 1960 61, which is the earliest proper data set we have, uh, till basically, till today, till 23, 24, uh, data that we have. Um, and the idea was to basically show, uh, over this very long period of time, um, uh, uh, of, uh, six and a half decades, how different states have done on two parameters. One is their share of national GDP, national economy, and their per capita, uh, income level as a, Proportion of the national average. So we have stripped out of it, uh, you know, overall growth and absolute growth and looking at their relative performances, um, so that, you know, we have a sense of what local or other, um, state level policies, how they affect overall story, um, and what are the regional disparities, uh, and so on and so forth. So it, uh, you know, so I thought, first of all, A lot of the work there is not so much analyzing the data, which we can also discuss, but simply to present the data that this is what the hard data says. It's a different matter. Different people may interpret it in different ways.

AI assessment note: “and the idea was to basically show, uh, over this very long period of time”

Q And is it fair to summarize that all the states that kept agriculture as their main forte, Uttar Pradesh, you know, Punjab, saw the decline over the six-year period?

A Well, yeah, yes. I mean, in, in the sense that, um, in the end, if you want sustained high growth, you will have to industrialize, urbanize, uh, and build services and construction and other sectors. Agriculture can only grow, even if it's in good times, it can only go at a certain pace. Now, there were, there were periods where certain states did do very well for, for some time, based purely on agriculture. And Punjab is a, Uh, a good case of that. Um, it did, uh, very, very well during the Green Revolution period of the 19 sixties, even into the seventies, and then it stagnated. Uh, again, my paper doesn't get into why it stagnates, but one of the things I mentioned there is maybe we should investigate whether or not it suffered a Dutch disease problem. So what is the Dutch disease problem? The Dutch disease problem is supposing there is an economy that is doing spectacularly well in one sector. What happens is that the other parts of the economy can then just relax because one sector is doing very well. And then what it does is skews the whole system. So that supposing there's a shock to that one sector, or you reach the limits of growth from that sector, you, you are unable to move to the next. You kind of become a prisoner of your own success. And Punjab seems to be, uh, one of the places where it's a prisoner of its own success, uh, in that it does well in agriculture, uh…

AI assessment note: “Well, yeah, yes. I mean, in, in the sense that, um, in the end”

Q And I'm glad you are taking up as a mandate on yourself in center, but I'm astounded that if this percolates it to state level, how much impact?

A Absolutely. You know, uh, for example, the lists of things that in the average, uh, district magistrate is supposed to do. You'll be amazed that the average district magistrate is the chairman of literally Dozens of institutions. Now, that person is going to be there for 18 months, if you're lucky for two years. Most DMs are there, I think, 18 months. So, most of these DMs have never actually chaired a meeting of any of, or a very small proportion of the many bodies that they are supposed to be chairman of. It's not humanly possible. It's not blaming anybody. It's not humanly possible. We need to clean that, that list. Just putting him chairman of every single thing does not solve any problem if that person simply not humanly possible. So every temple trust, every, ah, you know, government scheme, central state, local, everything. DM is the chairman. Now, how do you expect that? And as usually a young man, a woman in his early thirties, You know, does not even have a chance of actually holding a meeting. So those activities all fester. Monies are very often given to those things. They are obviously, there's nobody keeping track of them. Um, even if the, the, the officials who are running it, uh, are conscientious, there's no guidance. So you have vast amounts of these kinds of organizations and things just floating around, nobody paying attention to them.

AI assessment note: “You'll be amazed that the average district magistrate is the chairman of literally Dozens of institutions.”

Q And coming to our diatomy, right, which people call, we want to build the best temples in India, the largest, the magnificent temples, and the best government buildings now, and we are tearing up our old government buildings. Why is that?

A It's the same logic. So if you, if you see, go to Shastribhavan, then you'll understand the poverty of aspiration. These were built in the fifties. Now the government buildings of the previous generation, which the, the, the British had built, look at the North block and South block, whatever it may be, they had genuine imperial ambitions and they expressed it, right? So you can disagree with, uh, their colonial policies and all that, but you cannot say that from their Perspective. They were not ambitious, and that, you know, they aspired to signal power, and whatever, whatever it is that they were doing, they did. What did we aspire? We aspired for building these concrete, small concrete CPWD construction. Go to Shastri Bhavan, or Nirman Bhavan, or any number of other Bhavans in Delhi, and this is central government, state government. From Till the, now very recent building of the new parliament, Tell me one genuine, serious building that post-independence India built.

AI assessment note: “if you see, go to Shastribhavan, then you'll understand the poverty of aspiration.”

Q Uttar Pradesh was the state contributing 14%, and today it contributes around eight percent, you know, after, uh, 60 years. What, what, according to you, led to the decline? And I'm also come on to the other states, like, you know, we discussed in a previous episode, West Bengal. Bihar is a very surprising Contributed in 1960 10% of the overall GDP of India. Today it contributes around five percent.

A So, uh, the first important thing that you need to realize that of course in 1960 we were an agricultural economy, uh, heavily agricultural, um, and Uttar Pradesh, uh, remember that was undivided Uttar Pradesh. Uh, it was the single largest, uh, uh, state economy in the country, followed by Maharashtra. And then, uh, West Bengal was number three. So these were, uh, um, you know, this was the driving force of that time, but do remember Uttar Pradesh also had some rising industrial hubs, even at that time, like Kanpur, known as the Manchester of the East, um, and so on and so forth. So it wasn't purely agricultural, but nevertheless, largest state, largest population, uh, you know, huge fertile lands. So yes, uh, Uttar Pradesh was, um, then the largest economy in the country. And then in, over the next, uh, subsequent, uh, few decades, and it starts right in the sixties, seventies, you can clearly see its share steadily decline all the way through, uh, to, uh, twenty-ten or thereabouts. Um, then, you know, we can debate what the reasons are. That's what I don't get into the paper itself. But of course, um, you know, uh, several things would matter. One of them is, of course, uh, Long periods when, uh, it had a reputation for being lawless. So not enough investments. Um, it didn't manage to either grow new industrial hubs, uh, or even take the existing ones like Kanpu to move out …

AI assessment note: “Long periods when, uh, it had a reputation for being lawless. So not enough investments.”

Q Yeah. And, uh, what are the other important things? Let's say if, if we keep, if we keep on our population at tech 1.9, uh, right, what are the other things that India is not prepared and thinking about what will happen in 2050 then?

A So demographics is something that is somewhat predictable. Uh, so this is one of the few things in economics that has some ability to predict because we, we know today the birth has already happened of those who will be workers 25 years from now. You can't, You know, create a human being out of thin air. So this is one of the few things that are sort of predictable for most other things. Let me say we will have to basically be flexible. So in fact, I keep telling people that look, I have no idea where those new jobs will come from. But my thing is that as those new jobs emerge, I should have training systems. I should have laws. I should have all these things need to evolve with it, which is part of the discussion we heard earlier about multidisciplinary, uh, partnerships. Uh, when those, you know, various professional bodies were created, these multidisciplinary bodies did not exist. So therefore they didn't say they were not created for it. They were based, they had basically derived from the, What existed before them, which were basically medieval guilds. So they continued to be some slightly modernized version of a medieval guild. Now we have to move to the next stage. So flexibility with our times is more important than able to, ability to guess where this will go. We don't know where this will go. So allowing for things to evolve, emerge, new things to emerge, adapt to it…

AI assessment note: “I should have training systems. I should have laws. I should have all these things”

Q That's amazing. And what are the, some other small process reforms?

A So similarly for patents, that's something I talked about last time. So, um, when you came last time, we were easing it up. And so what was the problem? The problem was till let's say, 10 years ago, we used to get about 45,000 patent applications. And we used to give only about six, 7000 patents. So this is the situation in 2015, 10 years ago. Now, just to put it in context, at that time already, uh, China was already giving, giving three and a half lakh patents. Huh? Giving. So filing, there was a multiple of that. And the US also gives, uh, three and a half lakh patents. Now China has reached almost, uh, one million patent grants. So if, you know, so you can imagine how many applications they get. Now there is a quality issue in China. So I know it's not quite that number, but still even to take the good grant, they are doing about 200 to 300,000 good patents are giving out. So if this is the context, 10 years ago, what were we doing? We were giving out 6000 patents, and that 6000 patents also was a huge pain, because, uh, 45,000 patent applications were there, we are barely giving. So, many Indian innovators either didn't bother to patent, or they went abroad to patent.

AI assessment note: “So similarly for patents, that's something I talked about last time.”

Q And 34 years later, right, or 35 years later, you became part of that team that was reforming the banking system again. Tell us about it. Well, I mean, uh, what happened and why was it required?

A Okay. So, uh, to understand this, you have to understand the sequence of all the entire liberalization process. So first of all, what happened is that you had this burst of reform in 1991 to 93, but once those initial reforms happened and the benefits of that began to accrue and the economy stabilized, uh, there, then after that, the, they stopped doing reforms. The reason for that was very simple. We hadn't actually embraced We had done reforms because we had been forced to do it. And even though it was obvious, even at that time that we were benefiting from these reforms, the intellectual class, the so-called, uh, economics gyanis of that time weren't sold on it. So what happened is that once we did the reform, bare minimum reforms needed to be done and the economy stabilized, we stopped doing reforms. So now other than one sort, one or two things we did along the way, Basically we didn't do reforms. So what happens is the momentum got lost. And then of course the Asian crisis also happened in 97, 98. So although we weren't part of the Asian crisis, our economy also began to slow down and the momentum was lost and generally, you know, okay, fine. We had a good time, but that was it. Luckily we got a new prime minister, prime minister Vajpayee, and he also then did a bunch of reforms, uh, around about, uh, 2001, two, three, that, and that was the first time we began to create …

AI assessment note: “to understand this, you have to understand the sequence of all the entire liberalization process”