Krishnamurthy Subramanian, the new Chief Economic Advisor (CEA) to the Government of India, first caught the attention of the Narendra Modi government when he, as an ISB professor, stoutly defended demonetization in various opeds. An IIT-IIM alumnus who also counts Raghuram Rajan as one of his mentors, Subramanian stands by his belief even when challenged with data and anecdotal evidence. In a conversation with BW Businessworld’s Suman K. Jha, the CEA defends the Modi government’s economic report card, offering rare insights.
How do you look at the economy’s evolution since this government came to power?
The overall economy has done really well. Based on the second revised estimates, the average GDP growth over the last five years has been 7.5 percent — which is the highest for any government since liberalization. And that growth has happened in an environment where the world economy has not been doing well. There are headwinds against globalization which have affected exports.
This growth has been built to a large extent on domestic consumption. This is not just based on the revised GDP series etc. If you use the data in the ASI, which basically goes back to 1981 and therefore it is an unbroken series and you look at the growth in the gross value added, in real terms that growth has been 7.5 percent. This data is available only till 2016-17, so once more ASI data comes up this can be checked.
Secondly, look at inflation. It’s a very pernicious tax that poor people pay. So, in 2014 the rates of inflation were 10-plus percent. In contrast, the latest inflation numbers are 2-3 percent. Overall, the average rate of inflation has been about 4.5 percent over the past five years. Now this matters a lot if you think about the quality of life of a common citizen.
If you look at inflation around 2014, the real rates of interest were negative. So you had around 8 percent nominal rate of interest and 10.5 percent inflation, or minus 2.5 percent real rates of interest. So we were putting in money and finding its value depreciating in terms of purchasing power. In contrast now, if you look at the nominal rate of interest which is 7 percent and if you take 4.5 percent as its average rate of inflation, you are looking at around 2.5 percent real rate of interest.
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