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Speaker Narendar Pani – An economist weighs the options

Who would have realized that an analogy about potato chips could reflect the factors affecting the economy of the country?

Yes, such examples were precisely what Dr. Narender Pani, a renowned economist and journalist used to explain India’s economic situation in his talk on “5.5 trillion economy in 3 years…is India ready?” at RHF on July 5.

In a nutshell:

1)             To understand the present situation one needed to go back to the early days of India’s liberalization when the path and destination were set to plan the way forward for growth. To go from the present GDP of $2.7 trillion to $5 trillion by 2024 was pretty nominal taking into consideration the rate of inflation. But it will not be easy to go from 7 to 5 in the global ranking list without additional effort, particularly to go past Germany and Japan. Even to get anywhere near the target India has to have an annual growth rate of nearly 9%, particularly when the near term growth projection is only around 6%.

2)              The economy is not in the best of shape. Lack of demand meant that exports declined and imports became more expensive. Investments were made in Infrastructure but that did not help. It was a Catch 22 situation because fixed cost was high but utilization was low. This hit the worker intensive industry the most because of reduced demand. An example was the garment industry in Bangalore which attracted immigrant labour from other states. As the industry grew, the cost of living went up in the city and resulted in higher cost of the finished product. This resulted in the flight of industry to a cheaper country like Bangladesh.

3)             The slowdown was also compounded by the share of agriculture going down to 14% in the contribution to the economy. Plus there was no increased domestic demand to offset loss of exports.

4)             A significant factor in the economic slowdown was the lack of capital available for industries to grow. Foreign Direct Investment did come in but what hurt was the lack of domestic private investment. In earlier days Indian industry could tap capital markets to fund growth but today that too has dropped. Compounding this is the high level of taxation. A holistic look at drivers of growth is required to kick-start the economy.

But coming back to potato chips. When foreign brands of wafers, like Lay’s wanted to enter India, naysayers feared that this would be the end of Indian entrepreneurs in that field. But the fact was that these foreign branded chips occupied the creamy layer while local brands like Hot Chips occupied the lower but larger platform and grew. Thus the market for potato chips actually expanded.

There were several insightful questions from the audience which the speaker patiently answered.

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