VOICE & VIEWS
1.Economic growth in many developing economies has been accompanied by rising inequality and uneven regional development. In your view, what macroeconomic policy interventions are most critical to ensure that growth becomes more inclusive and benefits marginalized sections of society?
Respondent: We have to discuss about four important areas related to Indian economy. One related to inclusive growth, and the other related to the question about keeping a balance between growth and stability. The third issue is related to product-linked incentive and its impact on Indian economy. And the fourth issue is related to the impact of weakening of Indian currency and the possible monetary policy that the central bank of the country is going to follow. If one considers the first issue of inclusive growth globally, there are six pillars of inclusion. They are access, attitude, choice, partnership, communication, and the policy. Access issue appears in different forms. Some people may be physically not able to reach a high-rise building, some even the ground floor of a building or the top of a hill, or walk along the road, as the footpath may not be properly maintained or evenly kept. All these issues will make accessibility difficult for many. It is an issue for elders and those who are affected by other diseases. These issues are physical accessibility question. In the case of differently-abled, some may not be able to see things. So, they require an audio system to get information and knowledge. And some may not be able to hear, but they may be able to watch. So how can you communicate to such people? Hence, the question is, for those who are not able to normally access facilities in a society, physically and non-physically, an inclusive growth economy shall provide access facility to such people both in physical and non-physical sense. Access also implies health care, educational and financial facilities too. The second pillar of inclusion is attitude which demands a change in culture. That is, everyone should be able to welcome new changes. At the same time, one should be able to overcome rigidities or prejudices that exist in the system. For instance, the society must offer educational facility to all. The third pillar of inclusion is creating choices and choice making to the people. That means the system should be flexible. For example, certain sections in the society may be denied employment in higher executive posts. Similarly, women may be denied the right of higher executive posts in certain technology-oriented organizations. That should change. The society should accommodate all the people. In short, what choice making is that an inclusive society should promote and accommodate the diverse needs of the society. The next pillar says that all the sections or stakeholders in the society should be partners for the growth process. Nobody shall be excluded. If anybody is under extreme poverty, the society needs to address their issues and bring them to the mainstream of the system. Any inclusive system should be that there should be a sound communication system which is the fifth pillar of inclusion. That means if you, as in some economies with monolithic structure, get instructions from the top of the system, but they don’t get an opportunity to give their ideas to the policymakers. That should not happen. Information should be available to all without the cost or with less cost. That’s also an important aspect of inclusion. All these ought to reflect on policymaking, because those who frame policy, they should be evaluated and accounted by the people. That is the advantage of Scandinavian economies where every important policy changes will be discussed by the whole people in the system and transformative changes are taking place only after consulting the people every time. And the last pillar of inclusion is related to what is called opportunities. What is required is that every person in the society get the sufficient opportunities to utilize their capabilities. So that the system should ensure active participation of all and every person’s voice should be heard and be able to influence the top layers of the system. It implies that those who are away from the growth impact, the society should hear them, especially people like scheduled tribes, traditional fishermen and women. All of them should be given opportunities to grow. If the system is able to ensure these six pillars, then inclusive growth will be easier.
2. The Indian economy remains one of the fastest-growing globally, yet reports suggest rising risks from inflation, weak exports, and global uncertainty. How should policymakers balance growth momentum with macroeconomic stability in such a scenario?
Respondent: The issue raised is related to growth and stability. As everyone knows that growth implies increase in the national income at a constant price, and if you say that in a more perfect way, that is the continuous growth of per capita income in real terms. India is one of the economies in the world which grew very fast, but the question raised is that inflation is there, which is a major factor that influences stability, and at the same time it can affect exports also. So, these three aspects one needs to evaluate very judiciously; because growth rate should be evaluated in per capita level of an economy. India is expected to grow at around 7 % while USA in numerical terms may be growing at two percent, but you know, their per capita income level is very high i.e. around USD 9000 in 2025 while it is USD 2777.57 in India in the the same year. It implies that two percent increase in USA is a higher growth in absolute terms. In Indian case, when one says that India grows at seven percent compared to two percent of an advanced economy, no doubt a higher growth, but that is related to a low level of per capita income. So, in absolute terms that will be lower. Therefore, growth should be seen not with respect to the numerical value of the rate of growth alone, but should compare it with the level of per capita income also. But I am not disputing with the argument that India is one of the fastest growing economies of the world. When that alone is discussed, that does not give you a real picture of the situation. Inflation is an important indicator of economic stability. Compared to the second half of the 20th century and first decade of current century, current inflation rate in India (3.21%) is almost similar in USA (3.10%). Historically, India had situations of very high inflation rates. For instance, it was more than 25 % in 1974 (28.60 %) and more than 10 % in 1964, 1980, 1991-92, 1998 and 2009. In order to tackle potential rise in Inflation, Central Government rationalized GST rates in the previous year and a 10 % cut in excise duty is affected on petrol and diesel very recently. Unfortunately, LPG prices being subjected to frequent rise is a matter of serious concern. As you have already mentioned, the global uncertainty is increasing and the import cost of materials to India are expected to rise by 10 points in 2026. As a result, the expected advantage of a cut in GST will not be felt by Indian consumers now. But the argument that the export is also affected, I feel that it is not a very correct understanding of the situation. Because if one looks at the growth of the exports in 2025-2026, India’s exports on average increased by around 6%. Of course, that affected some of our traditional items like marine products, textiles, etc for a few months. But you need to understand the vibrance of the Indian economy that the Economy is performing better in some other areas which had not been conventionally having a better track record in the past. For example, the export of electronic goods, engineering goods, pharmaceuticals, in which pharmaceuticals traditionally had strength, and also petroleum products. Though it affected the performance of marine products and textiles, electronics, engineering, and pharma sectors are doing in a better way. That is why there is a general increase in exports around 6%. so, what happened virtually; India diversified our export or our composition of exports. At the same time, the economy varied the direction of the exports also, especially our exports are increasing to countries like UAE, Netherlands, Singapore, and China. Of course, US continued to be our major export direction spot. So, what is the argument is that our export performance is not so bad as we expected in the mid of 2025. It is mainly because of the diversification in the both composition of the exports and the direction of trade. And very recently, marine products and textile sources started picking up along with the more export of iron ore and diary.
3. Recent policy initiatives like Production-Linked Incentive (PLI) schemes aim to boost manufacturing and employment. In your view, how effective are such industrial policies in driving structural transformation and macroeconomic growth?
Respondent: The current issue which I would like to talk to you is about what is the outcome of the product-linked incentives that India follows. It captures under the slogan ‘Make in India’. I want to tell you that India had such a policy in the 1960s and it continued up to the early 1990s under the name Import Substitution. The product-linked incentive related documents show that it could attract an investment equal to Rs. 2.16 lakh after its implementation by the latter half of the 2014. It also enhanced employment opportunities to the extent of 14.39 lakh jobs which reflected on the production and sales too; because the combined increase in production and the sales came about Rs. 18.7 lakh in manufacturing. If you look at some specific areas, especially while discussing the second issue, as I told you that our export in engineering and electronic goods is increasing. Mobile manufacturing in India is increasing considerably. It increased by 28 times compared to the introduction of the Make in India context. Exports alone showed that we could export mobile worth Rs. 2 lakh crores. In fact, the mobile import to India decreased by 77%. Already I mentioned about that Make in India under PLI is one way a replication of the import substitution policy followed during the pre-liberalization period. In the case of telecommunication product manufacturing sector, there has been a 60% import substitution that has taken place in India. Further, 85 companies related to the automobile manufacturing has approved the PLI scheme. And there are 54 specific medical devices which are making use of the facilities related to PLI. PLI also generated 65 gigawatts of electricity under solar and renewable energy policy. One point which I want to mention about this, is that, many are in the pipeline, and is expected to achieve in the coming years. We have data on import substitution related to the telecom sector, but you know, a Make in India program will be successful if only we get a transparent data related to import substitution in all these areas. Because the final impact of such a policy should be assessed on the basis of import substitution. Import substitution means we domestically manufacture intermediate or finished goods instead of imported goods. That argument also can be extended to the use of the raw material too.
4. The depreciation pressure on the Indian rupee due to high oil prices and global volatility has raised concerns. What are the macroeconomic implications of a weakening currency, and how should the central bank respond?
Respondent: The fourth issue under discussion is a crucial one relating to weakening of Indian currency and the possible monetary policy that may be followed by country’s central bank. In that case, many try to evaluate the performance of an economy on the basis of currency depreciation. I would say that, of course, currency depreciation is one of the indicators of the strength of an economy, but unlike Singapore (322%) or Germany (79%), our trade as a percent of GDP is only 44.67 in 2024. Then you may ask the question, why our currency is depreciating? Because our imports (23.49 %) are greater than exports (21.18 %) and especially with the global crisis, crude oil import cost is increasing, and we are expected to pay that in dollar terms because the international transaction will be like that. And what type of monetary policy that the central bank will follow in this context? See, one of the latest reports that India kept some gold abroad for international security, more than 200 metric tons of gold in countries like Bank of England and some other international facilities. And very recently, 104.23 metric tons of gold has been returned to the country. That is a safeguard measure to strengthen our monetary position. It implies that central bank has already started to act on that. The country is also increasing our reserve of the foreign currency that has increased to USD 552.28 billion. A country with more gold stock and reserve in foreign currency with the central bank are some precautionary measures to meet possible contingencies in that field. Of course, we allow the currency to depreciate because that is one reason why our export increased. Even though we expected that the Trump policy may negatively affect Indian economy, through diversification and the derived result of depreciation of the currency, the economy could improve our exports. Now, if you read this along with the possible rise in inflation, sometimes central bank may increase the interest rate which can control inflation. It may be noted that it is a point connected with our second issue that how can you balance growth and stability? So, there is a possibility of a rise in the policy interest rates. Another thing is that if one supposes that Indian economy can show more stability, then through a high rate of interest it can attract more foreign capital. In that way, it would help the economy to have more capital formation. It can indirectly bring in more stability to the economy. But of course, it will have its own impact on exports. That point should be there. Similar policy changes can occur as far as the central bank is concerned.
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