Sanjeev Sanyal, noted economist and former managing director and global strategist at Deutsche Bank, is the principal economic adviser in the department of economic affairs of the Finance Ministry. Sanyal, who graduated from Shri Ram College of Commerce, spent two decades working in international financial markets before joining the government.
He is a prolific writer and has authored books such as Land of the Seven Rivers: A Brief History of India’s Geography, The Indian Renaissance: India’s Rise After a Thousand Years of Decline, The Incredible History of India’s Geography and The Ocean of Churn. Sanyal is known for arguing that conventional economists are wrong to demand perpetual “global balance”.
In an interview to PRASHANT MUKHERJEE, he speaks of how the Prime Minister’s vision of ‘New India’ can bring in a fundamental change in governance of the Indian economy.
Q. In the last three years of BJP rule, the Prime Minister has coined new terminologies. In 2014, he promised ‘Acche Din’ that won him the general elections. In 2015, it was ‘Make in India’ and ‘Swachh Bharat’, 2016 was about Digital India and Start-Up India and now it is about ‘New India’. What does this ‘New India’ mean?
A: There are many elements to this ‘New India’. But taking it from the socio-economic perspective one important element is going to be ‘moving India from a patronage-based society to becoming a rule-based society’. Secondly, this will be an India based on ‘Manthan’.
Q. What do you mean by Manthan?
A: By ‘Manthan’ we mean a churning of ideas, social churn, social mobility, we mean entrepreneurship. It’s an India that allows continuous churning of ideas, society, economic activity, new technologies. So, it’s an India of continuous change.
Q. Do you think the country is prepared for this continuous change without any thought given on what would be its impact on people?
A: Our current systems are not set up to allow for this continuous change that happens in the context of a rulebased society. But this is what the Prime Minister is aspiring for. Consequently, many of the changes that are being made have to be seen in the context of creating this churning of society.
Q. But how do the kinds of changes that have been made so far fit with this new agenda?
A: For example, one of the most important reforms that the government has undertaken is reform of the bankruptcy code. Why the bankruptcy code and not any other reform? The reason is that if you want a genuinely entrepreneurial society then you have to allow for the fact that when you take risks, some of them go wrong. If you do not have an exit policy, the churn will not happen. An important corollary of this is that society must not hold business failure as some sort of a moral failing. This should be seen as a part of the churn. There should be no social stigma attached to bankruptcy. Fraud is a different thing that should be tackled. So, at one end we want to create a simple bankruptcy system that deals with business failures and allows continuous exit so that the resources that are stuck in these failed businesses can be liquefied and redeployed. At the same time, we need to get rid of this social stigma of failing.
Q. In a sense what you are saying is that we must allow businesses to file for bankruptcy at the cost of capital of ordinary people, putting it in the context of rising NPAs in the banking system?
A: This is in reference to the same context in which we need to clean up our banks and NPAs. The old idea was that we somehow need to keep the bad loans evergreen, because the evergreen process at least keeps these old businesses alive. In the churning system, it is much better to settle, resolve, liquidate and then create a new wave of investment that comes. That is why it is a fundamentally different way of thinking about it. The same idea also applies to the enormous effort being made to curtail corruption and improve tax compliance. This is an attempt to create a rule-based society. It is a culture change that we are attempting to do.
Q. In that case, will there be any safeguards for consumers?
A: Yes, there have to be some safeguards. When you create a churning society you need to create some basic safeguards. The Finance Minister also said some sort of solution should be provided to those who bought flats in the project. But we have to be careful that in the name of protection to the common man, we do not perpetuate the failures of the past system.
Q. When you say constant churning, people are already feeling the pinch with the implementation of GST. Earlier,they have felt the same with demonetisation.
A: I think that the New India is beginning to understand this new culture. The old way of thinking was that we would spend five years to plan and design and then another five years in implementing it and then we would be completely surprised that after 10 years we did not succeed. We have to get away from this thinking. The new way of implementing things is that we accept that whatever we are doing is not perfect. The way we move forward is through feedback and adaption. Yes, it looks messier. When you are implementing something like GST, the fact is that there are all kinds of unintended consequences. No plan is ever going to be perfect. Instead of wasting a large amount of time to create a perfect system, it is much better to create a basic framework and to implement it. And as you implement it, you fix it along the way. This is a feedback loops and flexibility-based governance system.
Q. Don’t you think too many changes in a short span of time will impact growth?
A: The whole point is that we are a young nation which is ready for rapid change. It is screaming out for new ideas, screaming out to take risks. This is the New India that is willing to change.
Q. Don’t you think this sort of governance can be successful only when there is a proper balance maintained?
A: The balance in such a system is not provided by grand plans. First of all, we need a good judicial system that enforces contracts. Second, we need social capital and third, we need clear rules. These are the three anchors of the system.