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Six Men And A Problem

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Suddenly, there is a lot of negative news about the economy. Industrial production numbers are not very good. Interest rates are climbing. Fresh investments are down to a trickle. Meanwhile, food inflation has started climbing again. Is this a short-term blip or are we looking at a serious problem that will dog us for a few years? We asked six eminent economic thinkers to debate on it. And in case the conclusion was that we were looking at a medium-term problem, to suggest solutions to get out of it as soon as possible. Businessworld editor Prosenjit Datta moderated the discussion. Excerpts: Prosenjit Datta: Thank you for joining the Businessworld Roundtable. The topic for today's discussion, as you know,  is:  "Are we entering a prolonged period of high inflation and slowing growth?" At the beginning of the year the government was quite certain that it would see a GDP growth rate of  9 per cent plus this year - though quite a few private economists had already started saying that the figure was too optimistic. Now, both the government and the RBI are projecting 8.5 per cent GDP growth this year. But there are plenty of signs that even this might be a tall task. The global economy doesn't seem particularly encouraging.  In India, manufacturing is showing signs of a slowdown.  Business confidence is down. Investments are being put on hold. The overall atmosphere seems quite gloomy. Meanwhile, on the inflation front too, both the central bank and the government are struggling. Both food and non-food inflation has been consistently high for the past year. A few times, either the food inflation or the overall inflation has dipped a bit, only to start going up once again. My query therefore was that if we were looking at a period of high inflation, slowing growth in the next two or three years or is this a short term - say six month - issue that will soon reverse. Laveesh Bhandari: I was one of the private economists predicting that we can well achieve a growth of over 9 per cent this year. The evidence I was citing was from data we tend to look at in Indicus and many, many field visits across the country. Things appear to have changed quite a bit since. No one should negate the huge growth momentum we are seeing. But it is also true that - generally a sense of concern has set in not just in industry - large and small - but across the economic spectrum. I suspect if these interest rate hikes continue, we will see quite a serious hit on growth not just this year but next year as well. Samiran Chakravarthy:  I think there is now generally a consensus that we are entering a period of relatively slower growth and elevated inflation over the next six month horizon if not the next one year. The key issue is that on the growth side you have lots of tailwinds for consumption, you had pretty good year of FY 11 for corporate India so profit growth has been strong and wages have risen. Credit off take is high. There's been a very significant growth in growth in personal loans. Confidence has been shaken because of the front page headlines we are seeing but still I would the consumer is doing ok. The worry is on the investment side. Between the first half of FY 11 and second half of FY 11, the collapse in investment growth rate is worrying. There are two issues here : one of course is the interest rate cycle and the second is the policy paralysis we are witnessing, which in my mind, is even more important. If the latter is tackled, second half growth can be higher than the first half. TCA Anant:  There is a very strong underlying dynamism which we tend to lose sight of in our short to medium term assessments of growth and inflation. Look at the period of the recession 2008-2010. We hit the depth of the recession and still managed to pull out with a growth of over 6 per cent. This was an extraordinary achievement. You saw one of the worst global recessions - and it's  not even clear the world has as yet pulled out of it especially if you look at the situation in the US and Europe. But even then, we pulled out a growth rate that was higher than the famous Hindu rate of growth. This makes you feel that something has happened. There is a change. Having said that, I think our expectation when we came out of the recession was that we thought the pre-recession days were back again. But it did not hold. From beginning of 2010-11, you can see the growth effort tapering off.  In part, the pessimism we see now is partly due to the fact that expectations for the export market continues to be weak and one of our big drivers is services exports to North America and Europe, which are still not out of the woods. <table style="width: 200px;" align="right" border="0" cellpadding="9" cellspacing="9"> <tbody> <tr> <td><img src="/businessworld/system/files/PRONAB-SEN11_SS_200x200.jpg" alt="Pronab Sen" title="Pronab Sen" style="margin: 0px; float: right;" height="200" width="200"></td> </tr> <tr> <td>Pronab Sen ‘Demand is artificially propped up by fiscal stimulus, but capacity creation has halted. There are two problems — industrial growth tapering off and non-food inflation taking off' (BW pic by Sanjay Sakaria)</td> </tr> </tbody> </table> What is a huge source of support for India is that we are not really dependent on the export market for our growth. But internal sources of growth do face constraints. It is possible that we can do this and some of our policies of redistribution are having a Keynesian effect at promoting demand - if you are going to distribute incomes to people who have a high propensity to consume, you will see growth in consumer goods. That's probably what is picking up. But industry and services sector are yet to fully understand this. This growth in demand is probably different from the earlier high growth phases , which is why we are yet to see investment pick up. But if this Keynesian demand driven growth is created, you may need to see more investment in different areas like consumables, items of mass production, textiles and so on which have traditionally been slow.  We may see a revival based on a different industry mix. Inflation to me is packaged with this. If you are going to go in for a Keynesian demand led model of growth drivers, a side effect of that will be towards inflated price expectations and higher levels of inflation. I don't think inflation rates at this point are at levels that will cause a serious threat of systemic stability. Shashank Bhide:  I think it is inflation which has been more important in 2010-11 and going forward also.  If we are facing a growth slowdown, it is probably due to the policy response to inflation. In 2010-11, inflation has been led primarily by food and then the fuel price hike in 2011. This happened despite a very good monsoon. The commodities which led to the high prices were livestock products, fruits and vegetables, sugar. Has anything changed in the course of the year? I don't think it has and I think it will take time to see a supply response. The cause of inflation on the supply side still remains. Infrastructure also continues to be a weak spot which exacerbate the supply side constraints. The pass through of these commodity prices increases to the rest of the other sectors of the economy has taken place in the last six months. For this year, we were predicting a WPI based inflation of close to 7 per cent. Even a good monsoon may not be enough to bring that down. Also, oil prices are unlikely to go down. On growth, it's a more mixed picture. I was surprised by the growth in consumer durables goods in 2010-11. The only reason seems to be the fiscal incentives which were part of the stimulus package. <table style="width: 200px;" align="left" border="0" cellpadding="8" cellspacing="8"> <tbody> <tr> <td><img src="/businessworld/system/files/TCA-ANANT1_SS_200x200.jpg" height="200" width="200"> T.C.A. Anant ‘There is underlying dynamism in the economy, which we lose sight of in short- to mid-term assessments. We hit the depth of the recession and still managed growth of over 6 per cent' (BW pic by Sanjay Sakaria)</td> </tr> </tbody> </table> The divergence between durables and non durables was stark. Durables were growing at 20 per cent and non durables at less than 5 per cent. So inflation probably had a much greater impact on consumption of non durables than on durables. Similar divergence can be seen between basic and capital goods. The performance of steel sector was much better than what would have been suggested by the performance of the capital goods sector. Our quarterly business expectation survey showed that the capacity utilization index remained high - so it's not as if all this talk of decline in growth is showing up as excess capacities. What happened was that perceptions of investment climate declined perceptibly for whatever reasons. If you are taking the medium term view, what happened between 2005-06 to 2007-08 when we had better than 9 per cent growth and less than 5 per cent inflation. And what has changed now is that we will have maybe 8 per cent growth and maybe 6-8 per cent inflation? I think a lot of it is to do with the policies whether of fiscal incentives or monetary accommodations. I think the policy responses we should be looking for is easing of supply constraints rather than anything else. Rajiv Kumar:  I don't think in this country we can live with high inflation so one way or the other this will be brought down. We have got a huge inflation sensitivity in our society and enough monetary hawks in policy making to ensure that any signs of inflation are squeezed out. So I think we will see persistent hiking of interest rates. I think we'd had a consumption led growth for the last 4-5 years (rural incomes have been going up with NREGA and so on) and that phase is now coming to an end. Now you need an investment cycle to kick in and we are at the wrong timing because just the time you need new investment, we also have high interest rates. break-page-break Also, the climate has got nastier. I think these count for a lot with new investment decisions. The uncertainty in the system is higher and that holds back investment. Unfortunately, the India story has taken some beating abroad which is reflected in the decline in FDI and FII. So the recourse to Indian businessman to raise funds from overseas is not available to the same extent. As a result, investment growth has slowed down to 3 per cent. That's what is very troubling. You could have made this up by the government hiking its spending in things like infrastructure but that too cannot be done due to the fiscal deficit. Fiscal deficit situation is actually very precarious. The target for the fisc this year is 4.7 per cent but people are saying this could be breached by up to 3 per cent. Revenue growth will be lower due to lower growth and if you are stuck with transfer payments and all your subsidies, which is why you are hearing all these noises about diesel decontrol and so on. But with the next general elections coming up I don't see that happening. So, if transfer payments don't come down and you don't have the fiscal space to make the compensatory public investment, the investment cycle will not pick up. This is quite acceptable to the monetary hawks - in the late 1990s, you remember inflation was high and interest rates were hiked up and growth fell to some 1.8 per cent. But to them it doesn't matter since inflation has a political price. <table style="width: 200px;" align="right" border="0" cellpadding="9" cellspacing="9"> <tbody> <tr> <td><img src="/businessworld/system/files/RAJIV-KUMAR3_TS_200x200.jpg" style="float: right;" height="200" width="200"></td> </tr> <tr> <td>Rajiv Kumar ‘In this country, we cannot live with high inflation. So one way or the other, it will be brought down. Any signs of inflation will be squeezed out even if growth takes a hit'</td> </tr> </tbody> </table> Here I worry that if growth rates start declining then employment opportunities start disappearing. I've just heard that these business schools have seen a sharp fall in intake this year as people don't see the potential in terms of returns that they will get. That's a declining cycle which I had hoped in India we had got out of. So I will not be surprised if growth rate falls to even 7 per cent. The good part is that even 7 per cent is very good - we grew up at a time when growth rates were 3-4 per cent. Unless the government starts to tackle supply side constraints through structural reforms which it may well start to do. I have never heard any government official talk so loudly in favour of multi brand retail FDI (as the chief economic advisor is doing currently). I think all of this will come to pass unless the government now - beleaguered as it may be - has the courage to carry out the reforms in the financial sector reforms, the retail sector, the agriculture sector, education sector. I understand all of these are top on the PM's agenda now. Otherwise, we may be in for some nasty surprises. Pronab Sen: I think we have got caught up in our own little euphoria arising out of the way the economy behaved during the crisis. The fact of the matter is that when we were working on the 11th plan we had predicted at that time on 2008-09 being the peak of the business cycle and then declining thereafter. As a country, we've had en endogenous business cycle only once and a long one with a peak to peak of 10 years). We were expecting a shorter cycle with a peak in 2008 and then the next peak would be eight years after that, in 2016 maybe. We'd been talking about it at a mean growth rate of around 8%. The global crisis more or less put paid to that cycle. And when we started coming out of the crisis, we forgot about the cycle. We thought we were starting from a clean slate but we were not. If you look at 2004-05 to 2008-09, we had phenomenal growth rate in investment by any standards and sooner or later that cycle would come to an end and it did. It came to an abrupt end. If you look at 2009-10, overall the investment rate fell by about 4 per cent of GDP but corporate investment fell even more. Now if demand is artificially propped up because of fiscal stimulus and so on, but capacity creation has come to a sudden halt. We had excess capacities but by the time we hit December last year, we had pretty much used up our capacity. We started running into twin problems - industrial growth started tapering off and non food inflation started taking off. <table style="width: 200px;" align="left" border="0" cellpadding="9" cellspacing="9"> <tbody> <tr> <td><img src="/businessworld/system/files/SHASHANKA-BHINDE2_TS_200x200.jpg" style="float: left;" height="200" width="200"></td> </tr> <tr> <td>Shashanka Bhide ‘It is not as if all this talk of decline in growth is showing up as excess capacities. What happened was that perceptions of investment climate declined perceptibly' (BW pic by Tribhuwan Sharma)</td> </tr> </tbody> </table> So in a sense what Rajiv said is absolutely right. But with a little bit of caveat. We also experienced something very unusual between December 2009 and October 2010 - which was very high investment growth. So the corporate investment which had almost died during the previous 11month period came storming back. This capacity is going to come on stream. So I actually think we will see a much higher growth in first half of this year and a decline in inflation but the sustainability of that is really the question. Also, I completely agree with Rajiv that there is no indication that a new investment cycle is going to begin anytime soon. To sum up, if the crisis hadn't happened we would have been quite happy with 7.3 per cent and it would just be a normal business cycle. Inflation - my suspicion is that non food inflation will come down. Food inflation is a different problem - I don't see it coming down to below 8 per cent since there is a serious structural problem. So to conclude I think there will be strong growth in the first half with weakening thereafter. Samiran Chakravarthy: Very interesting. What Dr Sen says is actually contrary to what the market thinks - which is that the first half will be weaker and second half can be stronger if the government takes certain actions. What is critical is inflationary expectations. I think inflation is underestimated in the country. If you speak to anyone on the ground, inflation expectations are actually much higher. And then there is the case of money illusion. People do not calculate the percentage rise in most cases. Two favourite examples of mine. The person who manages parking below our office used to charge Rs 1,000. Now he has increased it to Rs 1,200. For most people working in a bank, Rs 200 is not that much. But it is a 20 per cent increase. The dhobi who irons clothes at our house has started charging Rs 3 per garment instead of Rs 2. It is a 50 per cent increase. And these things are trickling down at the ground level and keeping inflation high. It's interesting that we are debating this first half growth versus second half growth. With the kind of slowdown in investment in the last five months, it is difficult for me to imagine that we will see investment growth in the range of 8-10 per cent. The way our GDP is you will have to get an 8 per cent in investment and consumption to get an overall 8 per cent GDP growth. So I would put myself a little below 8 per cent for the first half. I also think that there is one factor which we are underestimating and that is rural demand. This is largely due to better connectivity, both roads and telecommunications. It's not a fiscal stimulus led demand. It is a more endogenous rural demand. The quality of rural roads has improved significantly and that has an enormous impact on consumption and all sorts of things. I don't think 7 per cent is a natural growth for us. 8 per cent is what I think is more realistic. 9 per cent is aspirational. break-page-break TCA Anant : What we are probably seeing is a change in the composition of what is driving growth. We've seen a high growth phase from 2001-02 till the crisis. Almost up to the crisis (the Keynesian redistribution effects didn't kick in until 2007-08 since NREGA etc started reaching the ground only then) was driven by the more traditional drivers of growth and to some extent international dynamism. Services sector played a big role. It was a different composition of growth. What we are heading for now is a very different kind of growth. It is being driven from redistribution. You can't pump in so much money without it showing up somewhere. For instance where NREGA is effective, the demand for two wheelers is up. The poorest will not hold onto the money, they will pass it on to the grocer who will then buy durables. So it will create demand for durables. By trying to look at growth in the manner in which it took place earlier, we may be missing the structural change and by not seeing its signs we may be over pessimistic. To me a Keynesian type of growth will always have inflation as a side effect since you are pushing up consumption Is that worth worrying about? I don't think so. Laveesh Bhandari:  I am very uncomfortable about this Keynesian led growth that Dr Anant has been talking about.  It is very scary. We all know we cannot spend our way into sustainable high growth levels. It's just not done. It happened once and I hope it will not happen again. Also, there are many other things that have happened - roads, telecommunications and connectivity. We don't tend to give too much credit to the construction activity that has happened in massive manner in rural areas. There are transfers, there are repatriations. It's not only government transfers that are pushing growth. If you look at the growth figures for UP, Bihar, Jharkhand, Chhattisgarh and to a lesser degree West Bengal, a large part of the growth is being driven by huge construction activity. <table style="width: 200px;" align="right" border="0" cellpadding="9" cellspacing="9"> <tbody> <tr> <td><img src="/businessworld/system/files/LAVEESH-BHANDARI1_TS_200x200.jpg" style="float: right;" height="200" width="200"></td> </tr> <tr> <td>Laveesh Bhandari ‘There is phenomenal surge in rural India. You can touch a sustainable 10 per cent growth. Agriculture is a small percentage of the whole growth, so it does not bring us down so much' (BW pic by Tribhuwan Sharma)</td> </tr> </tbody> </table> I don't disagree with most of the diagnosis but I also don't agree that our natural growth would be just 7-8 per cent. There is no reason why we cannot have more than 8 per cent growth. The last 2-3 years we have had these  opportunity - corporate and household savings have been up, investment has been up - it's not as if the government has been totally paralysed. Many reforms have taken place although some of the most critical parts have not been done - in financial sector and telecommunications changes have taken place which have benefitted growth. We are currently at a place where I would not be surprised if growth does go below 7 per cent. It is quite possible. Corporate profits are down, corporate profits lead household savings because bulk of the savings are proprietorships, so those are likely to be lower. FDI is a mess, investment is a problem so if the government doesn't do something of all the major reforms then we are definitely talking about a complete policy failure - it could be a growth of just 6-7 per cent. You can call it a cycle but I would call it a total policy failure. But whatever one may say there is a phenomenal surge in rural India and you can touch 10 per cent growth in a sustainable basis. Agriculture which is lagging is a very small percentage of the whole growth story so it does not bring us down so much. So there is nothing to stop us from aiming for 10 per cent. Shashank Bhide: Between 2005-06 and 2007-08,  the positive global environment also helped in the high growth. Going forward, I think the global conditions will be very critical for us to reach high levels of growth. And either way we see hikes in commodity prices - I don't know whether it is entirely due to tensions in the Middle East or is it because of just the fact that India and China are growing at over 8 per cent and consuming a lot. I think that worries me. I also don't think that the fiscal situation will be so worrisome. If there is growth, there will be revenue increase as well for the government. In terms of fiscal balancing, there are no more assets to sell - so we are going to see a pursuit of fiscal balance going forward. Rajiv Kumar: I quite like what TCA said that there is perhaps a structural change in our growth story. And maybe the export growth of 34 per cent is another pointer to that. I don't know why that is happening in a pretty sluggish global market. On Pronab's point on large corporate investment last year, according to state bank data, almost 70-80 per cent of the non food credit off take was for the infrastructure sector. No corporate in manufacturing sector was borrowing money at all. This kind of lending for infrastructure does not add to capacity, So I don't think we will see extra capacities coming on stream and a surge in the IIP. I am in fact quite worried about the IIP. I fear the growth rate coming below 7 per cent is a good probability for 2011-12. <table style="width: 200px;" align="left" border="0" cellpadding="9" cellspacing="9"> <tbody> <tr> <td><img src="system/files/SAMIRAN-CHAKRABORTY1_TS_200x200.jpg" style="float: left; margin: 0px;" height="200" width="200"></td> </tr> <tr> <td>Samiran Chakraborty ‘The whole (investment) mood has changed in the past five months. That no significant policy reform has been done or highlighted to foreign investors is adding to this feeling' (BW pic by Tribhuwan Sharma)</td> </tr> </tbody> </table> You had a 6 per cent jump in agriculture this year (from a 0 per cent last year) so the base has gone up. So next year will see at most a 3 per cent growth in agriculture even with a normal monsoon. There may not be huge productivity improvements even if there are some. So, with agriculture growth of around 2.5-3 per cent, industrial growth of sub 8 per cent, you cannot get a services sector growth to pull up growth to over 8per cent. I agree with Laveesh completely - 7-8 per cent of growth is not acceptable anymore in this country. And with the regional variations, it will be socially, politically unacceptable because the slower growing states will grow at 4-5 per cent. With population growth of 1.5 per cent, per capita incomes will not rise enough to absorb the labour force. It will lead to social and political stresses. That is where my real appeal to all of us is let's shift the discussion to employment generation. If you don't generate enough employment in this country that will undo it all. Inclusion through transfers is not really inclusion. Unless you get employment, there will be no inclusive growth. For a country that is getting 12 million new entrants to the work force every year, this will create real problems. Pronab Sen: The fact is that we didn't have the kind of monetary stimulus that other countries have had. The excess money supply that was generated in the economy over that period has long been absorbed. So, this whole thing of looking at monetary policy to address the inflation that is building up is not on at all in my view. I think the key is the fiscal policy. If you have a credible fiscal policy, I think it will have a far more salutary effect on inflationary expectations. The real question is do we have a real credible fiscal stance. Shashank clearly believes that the government can and will exercise fiscal restraint. Rajiv clearly believes they cannot and will not. I am part of the government so I have to believe (laughs) but that is at the heart of it. Even with growth, there is a critical point at which the government has to make space. Last year was not the time to do it but the time has come now. We tend to forget what happened in 2002-03 and 2003-04 - at that time the government had gone in for a pretty heavy fiscal stimulus and then unwound that very quickly. And government savings which were running at -3 and -4 per cent in fact turned positive. And that was the turn around that spurred the growth story after that. There is one thing I don't understand. Just because agriculture is only 14 per cent of your GDP does not mean you can stop looking at it very very closely. If you are talking of Laveesh's 10 per cent growth for instance believe me non grain agricultural production will have to grow by at least 6.5 per cent a year - you are doing 4 per cent at the moment. You can't get that 6 per cent you will have inflation and you will have that growth coming down like you won't believe it. I agree we can aim for 10 per cent but that has certain pre-conditions and to my mind the single most important pre condition is to get agriculture to move much faster than it has. Prosenjit: Everyone is agreed that investment - especially corporate investment - has come to a standstill. So, what can be done to spur investment growth. Second is the employment problem that Rajiv raised. Third, we are still discussing agriculture with the monsoon in mind. What happens if we don't get a good monsoon ? Pronob Sen: As far as investments are concerned, I think it's wrong to imagine that investments can be artificially boosted. The more important question we need to ask is why is investment low today ? break-page-break The popular take in the media is the high interest rates. I think that's incorrect. I think there is a huge amount of uncertainty. Last year's investment boom was a whole bunch of stalled projects that were restarted. Which answers why manufacturing is not there. None of these are new projects. Most of them are old projects which have attained financial closures but were put on hold due to the uncertainties of what was going to happen. There is no new investment in the manufacturing sector. Everybody is on a wait and see mode. Sooner or later they will come on stream. But the question is when and can we do anything to accelerate it? Will dropping interest rates help? I would not believe so. I think the first thing that leads such decisions is the perception of where the market is headed and the cost of funds and so on are secondary. The main thing is how we can increase the certainty in the system. As far as employment is concerned, what we do know is that organized sector employment is a small percentage of total employment in the country. The growth rate of corporate employment is slower than the growth rate of overall employment in the country. However, what you do see is that over the boom period we haven't had an employment problem as such. In the rural areas, there is a huge shift away from agriculture to other activities. So things are happening out there but all of that is happening under our normal radar screen. I think we are too focused on the corporates. TCA's economic census of 2005 tells us that there are 42 million non farm enterprises in the country of which less than 300,000 are corporates. What do we know about these ? Except purely in an anecdotal sense. We know very little. So whatever the kind of prescriptions you come out with will either be very macro or very corporate. The rest of the system we are all delightfully clueless about but it is the rest of the system that is bearing up quite well. Finally, agriculture. We still think of agriculture as if it is foodgrains. But the kind of agriculture we are now talking about is horticulture and animal husbandry which are not completely immune to the monsoons but far less susceptible. How do you get horticulture and animal husbandry to be far more dynamic now ? The answers are not to be found in the monsoons. The answers are in the systems we have in place to deal with these commodities. We have practically non existent systems. So we really need to get away from this fixation with foodgrains. Today foodgrains consumption in the total foods basket has already dropped to around 38 per cent. Indians are consuming 62 per cent of non food grain foods and this does not seem to enter our stream of consciousness. Samiran Chakravarthy:  As far as investment is concerned, it is quite accepted that whatever investment is coming in is in infrastructure and not in manufacturing. I agree with Dr Sen that Interest rate effect is not the primary thing. I think investment in India is more driven by animal spirits rather than anything else. I cannot tell you how the whole mood has changed in the last five months. The same people I meet - both domestic and foreign investors - are speaking a different language today. One concern is a pure macro concern. You are a country with a troika of problems : fiscal deficit, current account deficit and inflation and you seem to be having no solution to this troika of problems so I don't care whether you are growing at 8 per cent or 9 per cent, in six month or 12 months time, you will be the next South East Asia and will collapse. Then, there is a more micro concern which is even more worrying. This is well I thought India was the best destination to go to but how do I get in ? There seem to be insurmountable walls. There's a gamut of rules and regulations which not even those in charge of them fully understand. The third concern they have is that the economy has outgrown the institutions and policy reforms. We did well. One of the reasons we got high growth rates was that we had pretty good institutions to handle growth of that nature and extent. But now, statistics like it will take 320 years to clear the number of court cases pending at the rate we are clearing them, things like infrastructure constrains in all possible fashion, the corruption issues. The fact that no significant policy reform has been done or highlighted to foreign investors is adding to this feeling. Employment - it is interesting to look at the data of the 2009-10 survey. We did a report in which we looked at India over the next 20 years, One out of every 3 working age population in the world is going to come out of India. So if you say around 5 per cent of unemployment is acceptable and if you say labour force participation will go up from 36 per cent to around 50 per cent (as with most upper middle income countries), India will have to create 13-15 million jobs every year for the next 20 years. We have in the best of years we have done only about 10 million. And that too with 84 per cent jobs in 2009-10 survey being created in the informal sector. So I think this is the most important challenge for us. We are going to see huge educated population. We don't want to become the next Egypt or Spain. Agriculture - the problems are well known. If one looks at projections, it looks like by the end of this decade we will be importing most of our food grains which should worry us to some extent from a foreign exchange perspective and not just food security. A third issue we need to look at is land - how much we need to keep for agriculture and how much for industry. China has done it in a very innovative way. We as yet have no plan. TCA Anant:I agree with Pronab that the story in agriculture is not the one we studied. An enormous change has happened. The key infrastructure needed for this new agriculture  is roads, storage systems, rural markets. Some of this is happening. Employment in the organized sector in India is around 16 per cent. In most other developing countries, it is 45-50 per cent. Our economy is different. There is very little you can do to promote private investment. You can offer all the incentives you like and lower interest rates to zero and nothing will happen to investment. You show them that domestic demand is rising and investment will flow in regardless of what monetary policy has done to interest rates. I remember a time when interest rates had been hiked to 12-13 per cent and it had virtually no impact on corporate investment which continued to flow in and the wisdom I remember reading then was that is yes, corporate investment is actually not dependent on banks - they can raise money even outside the banking system or overseas. The fact is that corporates react to a very different set of stimulus and if that stimulus is provided, the corporates will react regardless of anything else. But you cannot target corporate investment - you will not get anywhere. I am optimistic about the growth scenario because of the underlying dynamism. As long as there is basic buoyancy in demand, the pressure on prices is not going to go away. You can dampen it by effective policy - increase competition in commodity prices, improve supplies. Policy response is needed and government has to take steps to implement them and there are signs it will do so. Rajiv Kumar: What you need is agriculture growth of 3.5-4 per cent, you need more credit to move into non crop, non cereal and this is where you need the entry of modern players. I personally feel entry of modern retail will help. Agriculture needs to be modernized. Also, APMC has to go. The central government can do a lot. I know it's a state subject but many levers are in the center's hands. Agriculture remains a hugely government intervened sector and we may need to relook at that. Every price in agriculture is government controlled. Second, on employment we have to bite the labour reform bullet. This dualism in the labour market will not go away. It's not just the hire and fire issue. On investments, I think animal spirits have taken a huge beating and these need to be revived. And in my view this can be done by fiscal policy improvements and the reforms that you have to carry out. People are waiting for the signals. At the moment you are regressing on the reforms side. If this catches on that you are going back to license raj in one way or the other - whether its with environment, land issues - then it's all over. Here the national manufacturing policy attempt that you need reduce the 70 clearances and 100 returns that corporates need to file- if you can simplify that I think the non reform margin for investment of pretty much exhausted. Shashank Bhide:  I think it is the manufacturing sector which has the key to many of the issues raised. I don't think we can produce in agriculture everything that we need. And if we need to import I don't think we should see this as the end of the world. In fact if our per capita incomes grow, we can import whatever we need. A lot of this has to do with trade policy. The pessimism on the growth front is short-term concerns. There is probably no feasible way forward other than having high growth rates. If we are pessimistic on growth, it is only in the short term Pronab Sen: Think about 2008-09. Animal spirits were booming and our institutional framework was roughly what it is now. What has happened in these two years which is so significant? Rajiv Kumar: I think it is the predominance of the NAC. There is a fear at the moment we are going back in time. Even 1991 doesn't seem sacred anymore. The kind of things that are coming out of the NAC. The kind of policy influence it seems to exercise. Until NREGA etc everyone agreed but now some of the stuff that is happening is scary like the land acquisition bill. The climate for economic growth and the support for it seems to have weakened. bweditor(at)abp(dot)in (This story was published in Businessworld Issue Dated 20-06-2011)