On US policies under Trump and supply-chain shift
We are already engaged in various actions, even during the Biden administration, to take advantage of the global supply chains moving away from China. But we all know it is a multi-year process, because China has such an impressive job of embedding itself in the global value chains over several areas. As for India’s response to the incoming administration, we know that not just during (Trump’s) campaigns but also when he was the president, there were some areas where he wanted action from India.
We are doing our homework and preparing ourselves to anticipate what would come in terms of trade policies, etc., and then we will respond as and when they materialise.
But right now, it will be premature to talk in specific terms because we are only talking about hypothetical scenario at this point. We also know that the Biden administration continued the previous (Trump) administration’s policies on restrictive actions on China. So, in that sense, we might see only a continuation; maybe the degrees would vary now.
On opportunities for IndiaWe need to continue to make ourselves more attractive for investments – in terms of last-mile infrastructure, the plumbing of rules and regulations, etc., and consistency and predictability of policies. We need to do these things regardless of whoever is in office (in the US).Whether it is in electronics or pharmaceuticals or textiles or renewables, wherever the multinational companies have been looking for alternatives (to China), we need to make ourselves an equally viable, scale-based alternative. Take mobile phones, where we are doing well.
I think what we need is also an expansion of the imagination in India. And it was not just confined to policy space. We really need to think of the global scale. And when we liberalise certain rules, we go from the threshold of, let’s say 100 workers to 300 workers, we say we have made a big change of 3x liberalisations. But we probably need a 10x or 30s liberalisation there. So, I think this is an opportunity and we will only be constrained by our imagination.
On whether the needle is really moving
We have started work on the next Economic Survey, and we will be focusing much more on the deregulation aspects. When some people talk of reforms, they only talk about things like making it easier for foreign direct investment.
But the reforms we need are the ones that could make it easier for our small enterprises to become medium, and our medium enterprises to become large. Whether it is contentment or fear of growth, we don’t know. But we need to remove that fear of growth and, for that, deregulation is the answer.
On capital outflows post Trump victory and India’s potential policy response
First of all, I think the most important thing is not to be sucked into the volatility part and end up overreacting. This is because our macro fundamentals are still very sound. Some of the indicators may be softening, but overall, our growth rates are very high compared to many others and we have adequate forex reserves. Both fiscal and current account deficits are in control and inflation hasn’t spiralled the way it had in even developed economies. Even today, Indian markets are still higher than a few months ago (early June). We don’t ask that many questions when the market keeps running up even beyond what fundamentals would dictate. But we end up overreacting when the markets correct. I think we should take it as a healthy correction, which should make Indian markets align with the macro fundamentals and, therefore, attract more investments.