"India Needs to Create More Jobs" | Firstpost Exclusive | Palki Sharma

Dr. KV Subramanyan, an executive director at the IMF, discusses India's economic trajectory, emphasizing the transformative impact of the 1991 liberalization, which spurred competition and growth. He envisions India as a $55 trillion economy by 2047, citing examples from Japan and China to illustrate potential growth through compounding. Subramanyan underscores the importance of domestic policies, job creation, and manufacturing to sustain growth. He stresses that economic reforms should be dynamic, adapting to changing circumstances, and highlights the role of state governments and the private sector in driving innovation and entrepreneurship.

• Dr. KV Subramanyan's personal journey from a modest background reflects the broader growth of India's middle class post-liberalization.
• His father, despite financial hardships, prioritized education for his children, allowing Dr. Subramanyan to become the first in his family to attend university.
• The liberalization of the Indian economy in 1991 was a pivotal moment, significantly influencing his career and the country's economic trajectory.

"My father lost his father when he was 7 years old and he could only go to school finished school he wanted to study more but he couldn't and therefore he made sure that me and my younger brother were two siblings he gave us you know education and ensure that I was the first person in our entire clan to go to university."

• Dr. Subramanyan's personal story underscores the transformative power of education and economic reforms on individual lives.

"Liberalization was a very, very seminal moment. I remember reading about liberalization, you know, sitting in the reading room at IIT and in fact, that was my first exposure really to economics."

• The liberalization of 1991 was a turning point for India, igniting Dr. Subramanyan's interest in economics and shaping his professional path.

• India's GDP per capita has seen a substantial increase post-liberalization, highlighting the importance of competition and economic reforms.
• The shift from a GDP per capita of $300 in 1991 to $2,730 now illustrates the benefits of liberalization.
• Competition, spurred by liberalization, has been crucial in enhancing capabilities and welfare in various sectors.

"From 300 to now 2,700 nine times increase in GDP per capita that to me is really the benefit of liberalization."

• The dramatic increase in GDP per capita since 1991 demonstrates the positive impact of economic reforms.

"What liberalization did for us is competition. I think no better example than the media itself... healthy competition actually enhances capabilities."

• Liberalization introduced competition, significantly improving capabilities and overall welfare across industries.

• Dr. Subramanyan envisions India becoming a $55 trillion economy by 2047, a goal based on rigorous data and economic analysis.
• Historical examples of Japan and China illustrate the potential for significant economic growth over 25-year periods.
• The power of compounding and a focus on achieving 8% growth are central to this vision.

"From 1970 to 1995, the Japanese economy actually grew in nominal GDP dollar terms by 25.6 times."

• Japan's economic growth serves as an example of the potential for substantial growth over a similar period.

"At 12% rate of growth in dollar terms, your GDP multiplies every six years... over a 24-year period from 2023 to 2047, if GDP multiplies every six years, there are four doublings."

• The concept of compounding and strategic growth targets are key to achieving the $55 trillion goal.

• Despite potential challenges such as climate change, de-globalization, and geopolitical tensions, focusing on domestic policies is crucial.
• Historical examples show that significant economic growth can occur despite global challenges.
• Domestic consumption and investment are major contributors to India's GDP, emphasizing the importance of internal policies.

"Japan's GDP multiplied 26 times from 1970 to 1995... despite the Vietnam War, oil shock, and hyperinflation in the United States."

• Japan's growth amidst challenges highlights the importance of focusing on domestic policies.

"60% of India's GDP is accounted for by consumption, 30% is investment... as long as we ensure domestic policies are done well, I think we can tide over."

• The focus on domestic consumption and investment underscores the ability to withstand global disruptions.

• Global conflicts and oil market disruptions can impact India's economy, particularly through inflation.
• However, the quantitative impact of such disruptions may be smaller than perceived.
• Effective domestic policies can mitigate the effects of international disruptions on the economy.

"Any disruption in the oil market has a direct bearing on our finances... but quantitatively, they're not as important."

• While global oil market disruptions have an impact, their overall effect on the economy is limited by effective domestic policies.

"Governments cannot blame international disruptions beyond a point."

• Ultimately, the responsibility for economic stability lies with domestic policy-making, regardless of international challenges.

• The responsibility for reforms, especially those affecting manufacturing and quality of life, largely lies with state governments rather than the central government.
• State budgets do not receive the same scrutiny or media attention as the central government budget, which affects accountability.
• Key policy areas like land, labor, and power are under state jurisdiction, impacting the ease of doing business and manufacturing growth.

"When the central government budget is presented, there's a full set of attention, but when state government budgets are presented, basically nobody pays any attention."

• Highlights the disparity in attention between central and state government budgets, affecting accountability.

"Almost 80% of policy relating to manufacturing is at the state level: land, labor, power."

• Emphasizes that crucial manufacturing policies are state responsibilities, impacting business operations.

"States now need to start delivering on reforms, and that is what will be really critical for us to be able to achieve some of these goals."

• Stresses the importance of state-level reforms for achieving broader economic goals.

• Economic growth requires taking managed risks, as zero risk only yields minimal returns.
• The Indian economy's exposure to global factors is significant, but domestic consumption, investment, and government spending are primary growth drivers.
• Global sentiments can affect the Indian economy, but the domestic market remains a strong foundation.

"If we want zero risk, then we can only get the risk-free rate, which is deposits in banks."

• Illustrates the necessity of taking risks for higher economic returns.

"The Indian economy has become more integrated, but the impact of the global economy on us is not as much."

• Indicates that while global factors matter, domestic economic components are more influential.

• The US and India have a strong economic partnership due to shared democratic values and mutual interests.
• Changes in US administration may have marginal effects on India's economic policy, but overall relations are stable.
• Tariff issues raised by previous US administrations are balanced by other areas of cooperation.

"The US and India are natural economic partners... the strength of the relationship has only grown."

• Affirms the stable and growing economic partnership between the US and India.

"There might be some aspects where they may focus on, but there'll be others where there'll be benefits."

• Suggests that any potential challenges in US-India relations are counterbalanced by cooperative areas.

• China's economic issues are structural, driven by demographic changes and an investment-heavy growth model.
• Temporary stimulus measures may not address China's long-term structural problems.
• India can potentially benefit from China's slowdown by enhancing its manufacturing capabilities.

"The Chinese economy right now encounters more structural aspects."

• Identifies the long-term nature of China's economic challenges.

"India definitely has the potential and is benefiting from it, but we can do more."

• Highlights India's opportunity to capitalize on China's economic slowdown.

• India's manufacturing sector has shown growth, but further policy improvements are needed to enhance competitiveness.
• Key areas for policy focus include labor laws, land acquisition, and reducing power costs.
• The transition from assembling to value-added manufacturing is crucial for long-term growth.

"Manufacturing sector grew at 9.8% on a GDP growth of 8.2%."

• Indicates the positive growth trajectory of India's manufacturing sector.

"We should definitely do assembling but also have the aspiration to quickly graduate into value-added manufacturing."

• Emphasizes the need for a strategic shift from assembling to more complex manufacturing processes.

• Bureaucratic inefficiencies and corruption pose significant challenges to business operations in India.
• Streamlining permissions and reducing bureaucratic hurdles are essential for improving the business environment.
• States should take the lead in addressing these issues to attract more investments.

"Entrepreneurs have to often run from pillar to post to get every kind of permission."

• Describes the bureaucratic challenges faced by businesses in India.

"We should definitely be aspiring to reduce it significantly and make it easier for our entrepreneurs."

• Advocates for reducing bureaucratic barriers to foster a more conducive business environment.

• India's trade dependence on China has grown despite political and defense concerns.
• Attempts to limit Chinese presence post-Galwan have not been entirely successful.
• Recent policy shifts suggest a rethinking, with more openness to Chinese investment and visas.
• The decision on engaging economically with China should consider geopolitical aspects, not just economics.

"The other thing is our own trade dependence on China which has grown despite all the political and defense-related concerns as well."

• India's increasing trade reliance on China is highlighted despite existing political and defense issues.

"I think the final thoughts on this must not be only about the economics; it has to actually factor in the geopolitical aspects as well."

• The speaker emphasizes that economic decisions regarding China should also consider geopolitical factors.

• Europe has imposed higher tariffs on Chinese-made goods, indicating a shift in trade policy.
• There's a global trend of countries reassessing their trade policies with China to protect domestic interests.
• India's nuanced approach to tariffs on finished goods aligns with this global trend.

"Europe, for instance, after a lot of back and forth and despite divisions that still persist, last week decided to impose higher tariffs on Chinese-made EVs."

• Europe is taking steps to protect its economy by imposing tariffs on Chinese goods, reflecting a broader global trend.

"I think now countries are doing it, and that is sort of in some sense vindicating the nuanced approach that India took as well."

• India's earlier nuanced approach to tariffs is now being mirrored by other countries, validating its strategy.

• India has the potential to become the world's talent headquarters, leveraging its demographic dividend.
• The creation of jobs is crucial for social and economic inclusion in India.
• Manufacturing is emphasized as a key sector for creating high-quality jobs and supporting economic growth.

"The other advantage that India clearly has over others is the people, the talent; we could be the talent headquarters of the world."

• India's demographic advantage is highlighted as a potential global talent hub.

"If you were to wake me up at 3:00 in the night and said, 'Hey, you're a policymaker, you think about what is policy for India,' then tell me three things that make you know keep you awake at night, I would say jobs, jobs, and jobs."

• The speaker stresses the critical importance of job creation for India's future.

• The narrative on job loss due to technology, including AI, often exceeds reality.
• High-quality data indicates significant job creation in India over the past decade.
• AI and technology will change the nature of jobs rather than lead to widespread job loss.
• India's digital infrastructure and multilingual capabilities offer unique opportunities in the AI space.

"The Narrative and especially the negative narrative has, I think, run far ahead of the reality."

• The speaker argues that fears about job loss due to technology are overstated.

"AI will actually have an impact on some of the white-collar jobs... but I don't think there'll be job loss as such."

• AI will transform job roles, particularly in white-collar sectors, without necessarily causing job loss.

• The middle-income trap is often overstated, with India not currently at risk.
• The broad definition of middle-income countries can be misleading regarding economic progress.
• Lessons from other countries, particularly Latin America, can guide India in avoiding the middle-income trap.
• Continuous refinement of economic models is essential as India's GDP per capita grows.

"The middle-income trap is something that a real very, very large trap, and the possibility of India getting entrapped there is very high; I don't think that is the case."

• The speaker dismisses concerns about India falling into the middle-income trap as exaggerated.

"We have to continually refine our economic models for... moving from the current equilibrium."

• Ongoing adaptation of economic strategies is necessary for sustained growth and development.

• Subsidies are necessary for domestic firms initially but should not be continued indefinitely.
• The withdrawal of subsidies should be timed appropriately to encourage firms to develop their own capabilities.
• The analogy of parenting is used to illustrate the balance between supporting and fostering independence in firms.

"Subsidizing domestic companies when they don't have the capabilities to compete with international firms... that hand should be one basically it should be reasonably loosely held with the expectation that it will be taken away so that... the industry can become capable."

• This quote emphasizes the importance of temporary support to allow domestic firms to develop competitiveness.

• Entrepreneurship involves inherent risks, and policies should aim to reduce these through ease of doing business.
• There has been significant progress in new firm creation due to improved business environments.
• Innovation is closely tied to entrepreneurship, with a notable improvement in global innovation rankings.

"The rate of new firm creation annually was 3.2%... from 2014 to 2024 when there's been far more emphasis on... ease of doing business the rate of new firm creation is orders of magnitude high close to 200%."

• This illustrates how policy improvements have significantly boosted entrepreneurial activities.

• Private sector involvement in R&D in India is low compared to advanced economies.
• Companies should focus on continuous innovation to remain competitive.
• Corporate venture capital is suggested as a way for firms to foster innovation internally.

"For every 100 rupees that is spent on R&D 2/3 comes from the public sector one3 from the private sector... in advanced economies $100 that goes into R&D 2/3 comes from the private sector."

• This highlights the need for increased private sector investment in R&D to drive innovation.

• Current efforts in skill development have not fully met expectations.
• Demand-side skilling, such as internships, aligns training with actual job requirements.
• ITIs (Industrial Training Institutes) should be integrated more closely with industry needs.

"Internship... enables demand side skilling... the firm is going to only skill the intern on things that they want basically."

• This underscores the importance of aligning skill development with market demands through practical experience.

• Economic policies should focus on using debt for asset creation rather than revenue expenditure.
• Mismanagement of debt can lead to debt traps, especially when used for non-productive purposes.
• Governance plays a critical role in ensuring debt is utilized effectively.

"When debt is taken for asset creation... that is infrastructure creation that aids to that enables growth in the country and that's... good."

• This quote stresses the importance of using debt strategically for long-term growth rather than short-term relief.

• The IMF provides necessary but often difficult economic measures, akin to administering medicine.
• Countries should ideally implement sound policies before requiring IMF assistance.
• The IMF's interventions are compared to a doctor providing necessary treatment for recovery.

"You don't blame the doctor for... having given the medicine and that medicine may be bitter medicine but that is something that is required."

• This analogy highlights the role of the IMF in providing essential, albeit tough, economic solutions to countries in need.