Gold Imports Duty India Manufacturing Falling Rupee Theprint

TITLE: Gold imports duty, what India lacks in manufacturing & the falling rupee CHANNEL: ThePrint DATE: 2026-05-18 ---TRANSCRIPT--- Hello and welcome to another episode of Bidishaomics. I am Sabika Sayyad and with us Dr. Bidisha Bhachara our consulting editor for economics who takes your questions dear members on economics, India’s position, global affairs, everything you send our way. Uh so Bidisha you’ve written a few columns that our members really really liked and the first question by Lakshmi Nayan is referencing that where you were explaining the reason for PM’s appeal right

so they’re thanking you for that. They’re asking is increasing tax on gold import actually a good move? Seems like while it could save the short term for the government, the long-term impact of this could be negative through increase in smuggling and incentives driving citizen behavior. Other leaders also seem to be cautioning people for what’s coming. Is the crisis really expected to get even worse? Uh thank you for this question and thank you for taking out the time to read the piece. Uh there are a couple of parts to this question so I’ll take it one after the other. So firstly in order to understand why government has raised or increased the gold import duty it’s important to understand a concept called current account deficit right so basically consider sort of you know India as a household where certain amount of money is earned it can be earned through salaries through remittances abroad through exports and there’s a certain amount of money that goes in the form of purchasing imports oil in the form of certain outflows that take place now once The minute the spending exceeds the earning, that’s when we have a current account deficit. Now, for a fairly long time, India being an emerging economy and being a developing economy, we’ve had a current account deficit, but that current account deficit in some way is widening and this is where the government is quite stressed. The IMF has recently projected uh that the India’s current account deficit will hit $84 billion in 2026 which is quite a strong number and here are two commodities that will be the drive driver for it. One is oil and the other is gold. Now oil we can’t control. This is happening solely because of external shocks, because of the West Asia crisis, because of supply disruptions as a result of which uh you know we import 88% of oil. Now there are estimates that are coming up which are saying we import 90% of crude oil and um the price the Brent crude price has gone up from 7 like from since the conflict began in February 2026 it has gone up from $73 to $105 per barrel and um in between it had peaked to $126 as well. So here and also with the state of Hormus closing this is not a lever that India can pull gold it can somehow handle. Now it’s important to understand gold is an important asset but as an input as something that fuels factories, hospitals, food, groceries, everything, every sector for that matter, gold is not as important as oil is. Right? So this is an area where of course the government can ask the citizens to reduce their consumption or reduce their purchase. Now there is also something very risky that’s happening because of our depreciating rupee. Uh RBI has or the foreign exchange reserves have gone down from $728 billion to $690 billion in the past 3 months from February till May 1st. Um that’s a loss of approximately $30 billion. So this is where um and that was primarily because um RBI was selling dollars in order to you know keep defending the rupee. So this is where the government is kind of scared and the gold duty or hiking the gold duty is kind of their response to it. Now comes this part of their question which is the smuggling argument which I find very interesting in this question and he’s absolutely um the viewer is absolutely right in asking this part that won’t it increase the smuggling risk. Now the higher the price gap between the original market or the market that is documented and sort of the gray market the bigger is the incentive to smuggle. Right now what happened is that and this is straight out of India’s I mean what India is adopting right now this is straight out of the historical playbook back in 2012 or before 2012 uh smuggling was not really a risk because the import taxes were negligible however in 2013 or before 2013 duties started hiking step by step from 2% to 4% to 6% to 8% to eventually 10% in 2013. Now that resulted in huge amount of climbing. Every time the hike happened smuggling activity climbed and after a point at its peak the directorate of revenue intelligence had estimated that around 150 to 200 tons of gold is being smuggled into this country and they are and they are being able to catch less than 1% of it. Okay. So um this was the time when the government and the government learned its lesson and in the budget of 2024 they cut down the import duties to 6%. And immediately smuggling dried up. So now when the duty was at 6% I would like to mention one particular data smuggling profits per kilogram were rupees around rupees 3 lakh. Okay. Now with this increase in the duty of 15% experts say that the illicit margins can go up to approximately 24 lakh. Uh now that’s not really a small incentive. That sounds like a proper business plan. So this is where even SBI research has um very specifically warned of this fact that all it’ll do is that it’ll probably show that imports of gold has fallen on paper but that the purchase will go underground and in the process like you’re basically moving from purchasing physical gold or on paper to the underground to the to the other gray markets where people will purchase gold. So on paper the demand might have fallen but the demand is as it is. So in that process what is happening is of course you are encouraging crime. Government cannot collect tax, they cannot collect GST or customs duties and in the process you’re also hurting the organized jewelry sector. So you’re hurting all the three at the same time by doing this. Now um comes to the other part of the question where he mentioned about Mr. Udai Kotak the the warning that was mentioned. Uh so here um like basically is the crisis getting really worse? So um very recently at the CI annual business summit uh Mr. Rod Kotak very specifically mentioned that um the the warning or rather the crisis hasn’t hit us yet. And he mentioned a term called strategic paranoia which means that we need to be prepared before the crisis deepens not after it. Now um was he right? Yes he was right. The numbers back it up. Uh, Ambbit Capital to be specific has mentioned or estimated that imports will rise 41% year on year in the fiscal year of 2027. And if we go by that number, the current account deficit will widen to 2.6% to 2.9% of GDP compared to 0.7% of GDP that it is now. Now, this is a significant increase. Um, so should we panic? I’ll give you another number which might sound a little panicky. We just spoke about the foreign exchange reserves falling from 728 to 690. Right now from 690 if we remove the gold holdings in the reserves which is 113 billion and net short positions of 103 billion then what we are left with in foreign exchange reserves is actually $471 billion which is very close to what it was in early 2014. Now should we panic? Not yet. Because experts are saying or and also analysis of you know market reports are saying that it is still not as worse as a 2013 taper tantrum situation. And um of course RBI still has around $150 billion. Um because it’s important to understand if we look at the inflation and the price level right now $471 billion in foreign exchange reserves will cover 5.8 eight months of imports roughly not more than that. So um this is something that of course it’s it is worrying should we be careful we should be careful definitely but should we panic at this point not really now the question is what the final part of the question which is what should the government actually do what are the better policy options in my opinion the first would be gold monetization but done properly so there are approximately 25,000 tons of gold sitting in households and temples which are not really contributing to the global economy. The issue with that is back in 2015 there was a gold monetization scheme that was launched where basically you earn a certain amount of interest. You deposit that gold and whenever you need to withdraw it at maturity uh you can withdraw the gold or the cash. But however that scheme did not do really well and less than even 30 tons of gold went into the bank. Um there was a reason for it. People distrusted it. they didn’t have confidence regarding it and gold has an emotional attachment to it and emotional value as well. So this is where I believe that this is a very good time to radically simplify the scheme. We have a very strong digital public infrastructure as well where people go and deposit the gold and if they do that they immediately get a digital receipt. they get a solid amount of interest that they can earn and whenever they will have to withdraw then they can withdraw either cash I mean equivalent to the gold or the gold for that matter now in this process what happens is the government the foreign exchange reserves will not keep depleting even if 1% of India’s this gold enters into the formal system the external balance will improve of India to a great extent okay now moving to another option that they can do which is something very minutely I’ve mentioned in the article is revive and reform the sovereign gold bonds. Now this was something very interesting that the government had started. It was a genuinely smart instruments. These SGBs they tracked gold prices. Uh 2.5% interest was given and it kept the transaction completely formal. But then over time and especially from 202425 onwards um they quietly and persistently just just stopped issuing those for some reason. Now um the reason being that probably I mean it everybody is assuming that probably they stopped it because you know paying back uh the formal transactions or the money was kind of getting fiscally stressful for the government. So um that was kind of let’s say a mistake in timing but this is a very this crisis period is the best time to bring those SGBs back and there are a lot of if you go on Twitter every now and then people are complaining that please bring the SGBs back. It’s basically they’ll shift from paper gold from physical gold to paper gold and forex stays in India and everybody is happy. Then comes to the option three which is growing the earning side not just cutting down on the spending side. Now when it comes to current account deficit there are two sides to it. One of course with current account deficit your import prices rise you have to pay more your money is going out but at the same time you can strengthen the inflows that are coming in. Let’s say for instance, India receives about $134 billion in annual remittances out of which $51 billion comes from the Gulf. Now that’s a risky position to be in right now. what India can do I mean just after the West Asia conflict or in this process as well is protecting and incentivizing that inflow aggressively by increasing let’s say services exports or the other exports pumping that up you know the areas the areas and the sectors that we are already strong in we have sort of long-term contracts with that needs to be pumped up at this point so that would be my respect nowish Narendra Arya also has a question in the same context They’re saying gold, petrol, international prices are going up. The Indian rupee is going down. So for we Indians, it’s double whammy. Once the Iran war stops, commodity prices will come down. But my question is about the Indian rupee. Historically, has the Indian rupee ever recovered? Second question, I think the Indian government is buying gold for reserve. I think the government should offer public to sell gold to the government. So in a way, uh what the PM wants can be achieved. Okay. Um very interesting question. Uh firstly I’ll take the first part of the question that you know the double whammy bit or the rupee now the rupee has weakened by more than 6% since this conflict has begun and now we are at a 95 rupees. Um you know now historically has ever the rupee gone back after any conflict? Uh no it has not and there is an economic reason behind it. Um, of course in the long-term picture they don’t usually go back and if we talk about from let’s say the 1991 uh reforms you know to now in 1991 it was around rupees 17 to a dollar and now we are at rupees 95 to a dollar and back in 1947 it was rupes 3.3 to a dollar. So um there has been huge increase but the reason why this doesn’t go back in the long term is something called an inflation differential. It’s important to understand when a rupee is weakening due to external shocks or supply shocks the inflation is also increasing differently in different economies and usually for an emerging economy like India our inflation rate will always be higher compared to let’s say a US once you factor that in of course in the short term the rupee goes back let’s say for instance it’s 95 right now it might go back to 88 to 90 for that matter but not something you know going back to let’s say 68. Uh in 2013, I I’m uh I’m reminded of the 2013 taper tantrum where basically the Federal Reserve had said that it would stop money printing for a while. That created a lot of panic across countries and in investors as well. And the minute I think we have established this in previous episodes as well. The minute there is panic created across the world, investors start taking money out of the emerging markets and capital flows out from emerging markets towards uh you know US treasury bonds and other assets. So that was something that had happened and rupee had fallen to the then uh lowest which was 68.35 rupees to a dollar. Okay, that was a huge deal. So uh right now um of course in a historical pattern I mean even back then RBI intervened. Now how can RBI intervene either it can increase the interest rate and they had done a brilliant job back then they had increased the interest rate and that was how they recovered I mean to an extent but even after the taper tantrum did the rupee go back to what it was before 2013 not at all in short terms we do see there’s a little fluctuation they they appreciate a little bit even in this West Asia conflict you would be seeing because there is every day one headline rupee has depreciated there there are days when I’ve noticed that you know K rupee has strengthened a little bit 05 or 0.1 something of that sort. Uh so that happens in the short term but long-term definitely it doesn’t. I spoke about the inflation differential but what can change I would like to say here is the speed and the volatility. So the RBI has been usually very good at managing that. We um have a managed floating exchange rate regime. We’ve discussed about this in pre in a previous episode. uh so managed floating exchange rate regime is basically where the RBI lets the rupee uh act according to the supply and demand in the market but when it gets very volatile that’s when they step in and they sell dollars purchase the rupee more to increase the value of the rupee now coming into the gold idea that he mentioned uh now this is something that’s that’s kind of exciting definitely um so RBI has been um and not just RBI there have been countries like France as well. But RBI has been um buying a lot of gold for its reserves. So right now gold reserves have jumped to 108 billion um in 202526 and the RBI is right now holding 880 tons for that matter. So now from you know the the reserves have risen I mean the gold part within the foreign exchange reserves have risen to around 16% for that matter. Now the question is um specifically the prime minister in his public appeal he said don’t buy gold much and they have increased the import duties. We have just discussed this in the previous answer. Um so what can be done? Um there is one solution uh that Mr. Nilles Sha the MD of Kotak Mahindra Asset Management who’s also um with the economic advisory council who has who has given an idea I would like to read his proposal that the RBI announces it will buy up to $100 million worth of gold from households at current market prices but pays only 65% of the price upfront in cash. This is very similar to what we were just talking about the gold monetization scheme. But here it’s very important to understand that a gold has an emotional attachment to it and because of not only because of the emotional attachment most of the gold that Indian households hold um they come from inheritance. Now what happens is when whenever you have a gold monetization scheme in place that would be much easier for RBI than to you know deplete their foreign exchange reserves. What why would they be doing that? um any scheme in place would require you uh reporting your income and your source from of the gold. How did you own it? How do you what is your income? What is the income of your family? Now a lot of Indian households are not comfortable doing that. Some of them don’t even know the source that has come inheritance. You know your grandmother ancestors have left some amount of gold. Then comes a certain amount of distrust that people have in the governance as to what if we don’t get that gold back tomorrow. If there’s a debt crisis situation, what if we can never withdraw that gold amount back or we don’t get equivalent cash amount. So this is where a proper you know plan has to be in place and something uh that I mean yet the government does not have but there’s huge amount of potential for the government to have a plan in place where you know we spoke about that instant digital receipt with a strong digital public infrastructure that we have provide higher interest rate make sure that you know there’s some amount of trust and stability in the system for people to say hey fine instead of keeping this gold at home I can go and deposit in the bank and earn a good amount of interest on it. So this is where not the RBI but the fiscal policy or the fiscal multiplier you know I need to talk about the fiscal multiplier here. It’s basically one rupee invested um by the government or in in any form of expenditure has the potential of generating more than one rupee of economic activity. But how is that being utilized is something that uh you know only the government can reform and answer in the long term. Uh also the legal and institutional complexity. This is another big problem. Whenever there’s an asset like gold involved there’s a lot of leg there’s a strong there has to be a strong legal framework in place that will take years. with the West Asia conflict right now and the way prices are changing, the way rupee is moving, RBI cannot afford to work on this right now. Instead, the best possible way is sell dollars and keep defending the rupee. So, that is the situation that’s happening. Now, Bisha, another move that the government has made is ban exports of sugar. So, Anuba Sakana has a question on that. They’re asking government has already made curs on exports of sugar. Which all other commodities or agricultural exports can government curb in future and how does that help the country to tackle energy crisis? Uh thank you Anuba for asking this question because agricultural exports and especially sugar has a a wonderful connection with energy but nobody’s really discussing about it. So the angle that he thought in the first place is very interesting. Uh so first let’s start with the basics. Okay. India is an agricultural giant. It exports not only sugar. It’s um I mean I I believe it’s the second largest producer of sugar. It’s the largest rice exporter. It exports wheat. It exports sort of onions as well. You know the the onions that we export end up in kitchens in the Middle East. Sometimes even if our rice exports fall, Nepal gets affected, Bangladesh gets affected and we produce enough rice to um take account of the consumption or take responsibility of the of consumption of at least South Asia completely. So now the question is why does a country with so much agricultural produce keep banning its exports? The answer is one word that is inflation. Now um India has a very specific political economy when it comes to food prices and every time there is a supply shock it can be due to external reasons or internal reasons that does not matter but that is that has been the trigger point at times for governments falling. Even there have been instances where opposition parties have won completely banking on onions price increases. Onions price specifically the the hold that it has on the political economy is is marvelous. So now it’s not just that whenever domestic supply tightens that can be because of the West Asia conflict. This has typically started from 2022. There have been a lot of export bans, export restrictions that have been taking place since 2022 and between 2022 and 2024 just after the Russia Ukraine war. Um it had so happened that uh rice um there were export restrictions on rice, there were export restrictions on onions and that did impact global prices as well to a great extent. Now coming to um you know in 2026 with the West Asia crisis what has been taking place? I’ll go from specifically commodity to commodity as he very rightly stated that sugar there has been an export restriction or export ban on sugar uh up until September 30 of 2026 so far there is a reason for it the minute domestic supply trains in some way or the other the government realizes no this is high time that we ban the expose so that there’s enough supply or stock for the people because it directly hits that 800 million people on the lower end of the income stream. Uh so and their consumption we usually use this term the marginal propensity to consume you know whenever we calculate GDP the proportion of income that goes into consumption. So usually for people earning in the lowered income bracket their marginal propensity to consume or MPC is very high. So they save less and they consume more. Uh as a result of which that hits them the hardest whenever there is a price increase whenever there is inflation. So coming to commodity by commodity the probable list and whether there might be export bands or not. Let’s talk about rice first. Now rice is most politically um sensitive. Uh now when it comes to let let me just give you a small example in 2024 around the export ban on rice was lifted. the minute it got lifted and also there were strong Asian harvests around that time. There was a 35% drop in global rice prices. Imagine the power that rice holds and the amount of exports that we do of rice. Now will there be a possibility of export ban on rice given the weather forecast or El Nino forecasts? It is being said that there might not be enough rainfall this year. If that happens because rice harvestation requires water. If that happens, there might be a possibility that export restrictions or export bans happen. Second is wheat. Now, wheat has been under an export ban since 2022 on and off depending on the requirement um statewise specifically because when it comes to wheat, there are a lot of states which do not consume as much wheat as the other states do. So, um here I mean we’ll have to see if there are any supply shocks or external supply shocks. But in case of wheat that has been one particular commodity where the export restrictions have been quite volatile like on and off. Then come to pulses. Now pulses your dals some of the pulses we actually import from Canada and Australia. uh now here if the import duties go up for whatever external reason then in that case um I wouldn’t say export bans but certain import substitution mechanism might take place to make sure that here people are fed properly on the dals and pulses so that the price does not rise and then finally coming to edible oils there is a piece that I have written in the past as well regarding you know how import dependent are we in certain areas where we can easily not be import dependent and oil seeds is one of those areas. So we import uh global palm oil or even uh sunflower oil for that matter in case because of this west Asia conflict or any other geopolitical risk there is a high chance of the price of these oils increasing that can lead to certain export bans uh from our end as well. Now coming to you know it’s important to understand one concept of um domestic plus global price wedge which is basically I’ll talk about the farmer here. So what happens is especially now why is rice and wheat so attractive for a farmer to grow because these are exported on an international level as well. So they get a marginally higher price if they sell the same rice internationally. Right now whenever every time government puts a ban on these exports it’s kind of a tax that the farmer is paying the money is not going to the government but there’s in in the form of lost income. Okay. And farmers are one of in India farmers are one of the most financially stressed people in the world at this point. So uh now comes a very interesting part of course yeah farmer loses export income. Now here is the part where he very interestingly connects it as to what does this have to do with energy prices. Again there is one answer to it that is ethanol. So ethanol production lately we have been blending ethanol production to be specific 20% in nearly we’ve already achieved 20% of ethanol blending in petrol and the primary feed stock required for producing ethanol is sugar cane molasses which comes from sugar production. So at this point this export ban that is taking place on sugar is not only because of the domestic consumption of sugar but also trying to convert certain farm fields into towards oil fields because we are heavily dependent on crude oil. And it’s important to understand that every ton of sugar cane being used in ethanol production is one ton of let’s say or I mean a good amount of money that you’re saving in the foreign exchange reserve that is not going into purchasing crude oil in some way or the other. So uh that is of course something that we I mean we have already established the fact and not just we I mean it’s out there in the news that foreign exchange reserves are at a risky point uh right now. So which is why prioritizing refining processing of oil prioritizing storage of oil increasing the production is right now um sort of the most important priority for the government. Um which is also a reason why you know um sugar has been banned. Now I would like to speak and also I before I miss out Mr. Nathan Gatkari GI has spoken about E85 and E 100 um ethanol um blending as well 100% ethanol blending. So the target is going um forward quite well. In fact, we actually now have an ethanol surplus. Um so that that basically shows that we are producing quite well but the oil marketing companies are not purchasing them. So the demand also needs to be pumped up and that’s something that’s a structural reform that the government needs to do. But there are two costs and two disadvantages that take place. One is the farmer being the first casualty. We just spoke about that there’s a lost income uh a good amount of income export income that the farmer usually earns but whenever every time uh you know the government puts an export restriction or a ban they their income uh or their consumption takes a hit. The other one is India’s global reputation takes a hit. I’ll tell you how I I just spoke about you know whenever there is an export restriction on rice Nepal has been affected earlier there have been uh you know instances of that kind uh Bangladesh scrambles for you know rice consumption every time India puts an export ban now if this happens frequently then these countries start looking for hedging or diversifying supply sources because they need to feed their people as well right so which is why And again talking bringing the product complexity index into the picture here. Rice and wheat fall under the lower complexity bracket. So they are not commodities that are not easily replicable that cannot be produced in another country. So then it gets very risky because even without doing anything just by banning exports on and off to you know make sure that the domestic prices don’t go up you’re actually building other competitors and other countries come into the competition and then it starts affecting your exports and your in general your current account balance. So that would be my right. Uh now Suri Kumar has a question saying that China and India started their economic journeys around the same time. Yet China built an unshakable leverage in manufacturing and critical infrastructure while India lags. Is this a failure of long-term national economic vision? Why are we always late to the party? Why are we not able to make rapid course corrections? Should we work on something like broader national economic plan irrespective of the party that comes to power? Uh thank you Si. It’s a very interesting question. It gives us an opportunity to talk about China. Uh so um now it’s let’s start with the uncomfortable facts first. In 1987, India and China’s GDP was almost equal. Today China’s GDP is 19.4 trillion. India’s is 4.2 trillion. That is the gap right now. And back before in the 1980s, let’s say India’s per capita GDP was actually higher than that of China. Right now, China’s per capita GDP is five times that of India. Now, and everybody, a lot of people who try to defend this number, they say it’s about the size of the economy. It’s not about the size of the economy, it’s about the structure of the economy. And this is where manufacturing plays a very important role. India’s manufacturing share is way below 15%. um which was not the case which is not the case um for China, Japan, Korea, Taiwan for that matter. Now all of these countries that I mentioned had a manufacturing share between 25 to 30% when they were in their high growth phases. We are right now the fastest growing economy, right? One of the fastest growing economies that is something that is told every now and then in every across news channels. So um ours is below 15%. Now what is the reason for it? Of course there is a certain form of premature industrialization where we jump directly from agriculture to services. Did it give us something? Yes, it gave us infosces. It gave us TCS but it did not give us or generate that amount of employment, labor intensity and growth that manufacturing exports deliver. Here uh the divergence is absolutely real. Now the part of the question is that why did China pull so far ahead? Is is it just authoritarianism? Now the lazy answer is China is authoritarian which is which means that building a highway, building a school, building a healthcare center is very easy uh because uh you know there is there’s a rule in place a format in place and India is a democracy and everything takes time. The answer here is partially true but I feel it is to an extent deeply incomplete because China’s divergence from India began in the 1980s to be specific. Here it was driven by certain reforms. It was driven by not only trade liberalization but also strong foreign direct investment and crucially investing in human capital way before this economic boom or surge took place in China. What do I mean by human capital? China invested heavily just before the manufacturing surge or the reform surge in healthcare, in education, in sort of building up infrastructure that makes the labor sector or or people who are sort of skilling from a perspective towards the manufacturing sector very comfortable. So the minute the manufacturing boom hit, people were just ready to be skilled and to be employed into these sectors. So this is something that India did not do and in to a certain extent there are certain states till this day that don’t have that strength in human capital. We don’t invest enough in healthcare and education as we should have done even back in 1991. Let’s talk about 1991. Okay fine. Their reforms began in 1980s. In 1991 our reforms were actually started from a reactive point of view. It was a response to a foreign exchange crisis for them. It was a proactive policy, right? It was not it did not generate out of some crisis situation. Then coming to another aspect um you know the real the real problem that you know she mentioned uh here sort of the why are we always late to the party? This is the question that she asked. Now, here’s a concept that I want you to take away from this answer, which is the difference between a policy and a strategy. A policy is basically what a government does. A strategy is something a nation does regardless of which government is in power. China has done the China has proper five-year plans since its 1980s or even before that. And uh President Xi Jinping has called it, you know, a political advantage. Um which is where they have a proper system in place regardless of you know uh probably governments going or industrial policies are particularly following a path a framework and of course trajectories are modified you know with time um given you know now the critical minerals or you know specifically in the batteries area they have you know recycling the CL that that they have developed um recycling of batteries and utilizing ing it to produce more. Uh so that has developed over time and right now if I’m not wrong they are currently on their 15th 5-year plan. India has also had that since 1957 till 2017 we had planning commission we had five-year plans and then it stopped. Um what happens here the issue is with every government that comes to power but for instance UPA started Mandrea NDA will remove it come up with something else. ND has NDA has started PLI schemes some other government tomorrow will come and remove it scrape it off now when this situation happens then a particular flow is not maintained and any kind of infrastructure spending it’s not really long-term now the thing is that of course you might ask that um democracies might not be able to do it that’s wrong there are countries that have been able to achieve so Korea South Korea has been able to achieve regardless of governments changing they have been able to maintain the developmental trajectory. So has Germany. Germany’s from when it comes to industrial policies, the cross party um sort of decisions are in the same um or are on the same uh line. Uh they they come together even if there are arguments they kind of decide okay what is um what can be additional to this line of process and actually there is an area where India has been able to maintain it which is the space mission. Okay. ISRO. So ISRO you you’ll be noticing ISRO has been since the time of Nehu uh when it comes to funding it has not been that every other government has come they have been tried to defunded uh ISRO has done Chandran and uh you know different other um sort of projects that have been extremely successful. Uh so just like ISRO imagine having a critical the national critical minerals mission um the the 4 billion project that India has aspires to and will be very very helpful for Vixhara 2047 or say in semiconductors if we can build something like that a 25 year solid plan then nothing like it so it’s not that it’s not possible it’s absolutely possible but um of course there are certain uh you know deadlocks or certain disadvant advantages uh also I’ll be I I’d like to speak here about the recycling bit once again you know here because the e-waste portion she mentioned in the question so I I would like to talk about that the e-waste bit is India yes it’s true from a solar perspective or even any other energy perspective India generates a lot of e-waste e-waste is basically you know batteries that people don’t use anymore there can be other equipments plugs and all of that that just people just throw away now there’s formal sector for it that takes it to recycle but that’s very small compared to the informal sector kabari walas or you know these small shops that are out there where that data cannot be documented now why is that not being able to formalize the issue is incentives so here behavioral economics comes into the picture the government has to provide incentives to make it attractive for these informal sectors to formalize because they are earning some money they’re not having to pay taxes for it and if it is formalized the best part is um a to make sure government has to make sure that it’s not expensive uh because right now Samsung and then there are other companies that are fighting against the government because they’re like if we have to recycle it is becoming expensive for us and they are not getting any incentive in the picture. China has brilliant China has actually now built an industry where they recycle huge amount of the e-waste and that goes into their production of you know new battery with lithium they’ve been doing that that goes into the the production of new batteries that automatically reduces their costs and input prices over time and their profit margins increase even further. So uh this is something that that we can also do and incentivize the policies. So yeah, now Bidisha, we’re talking about infrastructural spending that economies are doing. Uh our viewer member Silito 3338, I’m sorry I don’t know your name. They’re asking is the ravy DBTs or direct benefit transfers a softer version of UBI or the universal basic income? How can this money be made more productive for economic growth? Interesting. Um let’s first understand that we’re all on the same page. Direct benefit transfers are basically cash transfers that instead of the government sort of buying you something uh say um electricity for your house or say subsidized gas cylinder or subsidized grain the money directly goes into your account not through any middleman. It is linked to Aadhaar it is linked to your Jandhan account. And this had started way back in 2013 where uh you know I mean it was at a very nent stage and right now around 1,200 schemes come under this DBT um the direct benefit transfer initiative. So um when it had started we had gone from transferring I mean back in 20134 the data was 7,400 cr that was being transferred and now 7 lakh cr um is being transferred into you know different jandhan accounts and so now comes to the ravery um thing that that’s the political slang which is basically just prior to election um or polling a,000 rupees is um deposited into your account or um free laptops or something free electricity is given to you. This is more of a political move or to gain votes uh because uh you know the Supreme Court has had their opinions regarding it. The prime minister has had his opinions regarding it. But the and this is primarily you know to gain more votes than to contribute to the development for that matter. Then comes universal basic income. Now this is an academic idea which has been battled with for a year for multiple years for that matter which basically says forget eligibility criteria, forget bureaucracy, just deposit a certain amount of money, forget thinking who is rich, who is poor, just deposit a certain amount of money or transfer a certain amount of money to every household um every month unconditionally. That is UBI. Now there are different parts of it. Um Kenya has tried it, Finland has tried it. Um Silicon Valley loves it because they’re always scared that AI will take up their jobs. So now moving to the first part of the question that is DBT or Revy or softer version of UBI. The honest answer is yes and no. The no part matters here. Um the delivery mechanism is same. Uh in case of DBT or Avery, the amount is transferred to the bank account. In case of UBI as well, but it misses two words. one is universal. Uh this DBT or ray is not universal. They target specific beneficiaries, right? So it can be the PMKAN scheme for instance, it goes to farmers. Scholarship transfers happens to students specific beneficiaries and of course the these are the free electricity, free laptops and all are for election purposes. Then comes basic income. DBT doesn’t really qualify as basic income. I’ll give you an example. Say for under PM Kasan scheme uh Rs 6,000 per year is transferred to a farmer which is 500 rupees every month which is not something it can it is not really income it can be an income support measure but UBI transfers a much higher amount of money which qualifies as income every single month. Now coming to the next part of the question that the is the money being wasted? How can this money being utilized even further? Now um let’s first understand one thing the welfare support or the welfare spending has increased from 2.1 lakh cr in 2009 to 10 to 8.5 lakh cr in 2023 24 I’ve recently done a state study on Kerala West Bengal and Tamil Nadu where you can actually see it’s the last graph of too many graphs that I’ve shown in the last graph you’ll see how much the welfare spending has jumped and it has happened for every other state as well. So here one thing that’s important is that the DBT has actually saved 3.48 lakh cr over time from going into host beneficiaries or leakages for that matter. That’s a good thing that’s a good sign. But um saving money from leakage is not similar to generating economic growth. You know like if there is a hole in a boat plugging that hole and sailing somewhere is not the same thing. So now what can be done is of course studies on uh you know PMISAN has found that farmers received the amount that the farmers received 64% of it they have been using for purchasing input seeds fertilizers pesticides uh you know the things that are required for agricultural production and the rest 36% has actually gone into consumption. Now the 64% is actually contributing to the capital of the economy. that 36% goes for consumption that’s not really contributing to the economy. So um again talking about the fiscal multiplier bit where you know how much more than one rupee of economic activity can be generated by one rupee uh that is being invested or that is being spent. So now um of course then then what is the solution? There are three that I can think of. First is conditional cash transfers. Here it reminds me of Mexico’s opportunity program which is now called Prospera where mothers are transferred some amount of money if their children goes to schools or um if they visit healthcare centers. Now what happened over time that really improved both health care, healthcare infrastructure and also schools and educational sort of you know um children going from middle school to high school that that kind of improved. Now here coming to um India’s DBT, India’s DBT is mostly unconditional. It targets specific bene beneficiaries but there’s no condition attached to it. So this is something that you know if there are certain conditions connected to it that would be great. Uh then probably that 64% will increase even further and contribute to the capital building in the economy. Then comes another which is productive asset linkage. Now if certain amount of DBT could be connected or whenever they receive this transfer it could also be bundled with some access to a microl loan say for instance or a skilling program that would automatically benefit the entire economy because there are I mean from the little conversations that I’ve had with people you know in the agricultural sector they are really willing to upskill themselves and move to sort of you know the manufacturing or you know or probably send some of their kids in the family to better quality jobs. So um there have been UBI pilots as well in Madhya Pradesh and in Kenya and Finland and all of that. So there has to be if there are enablers alongside those transfers it does help to a great extent. Then comes another one which is a bit controversial I would say linking transfers to local public goods. Now basically that 500 rupees per month that is going if a certain amount of that 500 rupees is built to that in that village for every farmer for that matter that amount of money goes towards building a sort of you know from from the farming perspective a certain infrastructure or a well that could store water for uh the farming activity any kind of particular or a good hospital for that matter um then that could promote the infrastructure and capital spending to a great extent. Um but of course that again becomes politically unattractive. Um so yeah these would be the policies that I could think of. Right now the last question for this episode is by Ranjit Pal. They’re asking what is real GDP growth versus just GDP growth of any country? They’re al they’re also asking will diamond or gold be that is imported be reexported as jewelry count? Um firstly let’s understand about the gross domestic product. It’s the total value of goods and services that are produced within the country’s borders in a year. Now, uh that is kind of the textbook definition. Now, what matters here is the word produced. So, GDP means production. It doesn’t mean consumption. But here a very important concept comes into the picture which is value added. So, uh otherwise there would be a double counting in place. Let me give um an example for it. Let’s say for instance a farmer grows because we are we’ve just discussed sugar and sugar cane. So a farmer grows sugar cane at rupees 100. Okay. So now a sugar mill buys it and produces sugar and send sort of um exports it or probably sells it at worth 150 rupees. Now a confectioner buys that sugar and prepares something and um sells it for let’s say 300 rupees. Now if you add up 100 150 300 then you get sort of 550 rupees but that’s not what GDP is because you’re doubly counting every single sort of you know amount that is being totally spent. The game here is all about value added. So from that 100 rupees sugar cane that that farmer produced and that sugar mill which produced sugar or refined sugar out of it the value added has been 50 rupees. And for the confectionary that 300 from 150 so the value added has been 150 rupees. So the total GDP contribution in the economy has actually been 300 rupees. So here comes uh you know now that we’ve understood value added it’s important to understand that what is the difference between nominal GDP and real GDP. Let me give an example where say your income this year has increased by 7%. Or let’s say by 8%. Okay. But the inflation rate in the economy is 7%. So your income actually grew by 1%, it did not grow by 8%. That is the difference between nominal GDP and real GDP. So nominal GDP is the favorite number for governments to show because it’s a big number. They’ll show a big number because it incorporates the inflation as well. Real GDP removes the inflation picture and says this is what has been actual the real value added or the real increase. Which is why if you go to the RBI handbook of statistics or MOSP for that matter and if you go there and and if you type you want data let’s say for years on GSDP or GDP. GSDP is basically the GDP for a state gross state domestic product you will see two categories one is at current prices and the other is at constant prices that one at constant prices gives you the real growth and current prices is what is the price existing right now in the market. constant prices. We usually freeze uh the prices at one particular year. In our case, it’s between 2011 to 2012. We are trying to upgrade that number to 2022 23 especially after IMF’s report on you know giving us that C-grade because the data is not updated. Um so specifically um this is an area um that I mean this is the definition or the difference in them. Now comes a very important concept here as well which is the PPP or the purchasing power parity that basically tells you what is the worth of a basket of commodities and how much is the difference the real difference of a basket of commodities between two countries in US you know a haircut costs something here a haircut costs something what is the difference and that difference should account for transportation that’s it not there shouldn’t be other uh sort of factors into that picture Now comes a very interesting part of Ranjit’s question which is gold diamonds. Uh now what happens? Say for instance when it comes to raw materials or raw gold, raw diamonds, unpolished rough diamonds, we import it from mostly from Russia, from Australia, from even Botswana. Okay. What we do is then we take it to Surat or other uh portions. We polish those diamonds or and that gold and all of that and we export it to other countries. Now say for instance we bought this gold let’s take gold for example we bought this gold from Russia at 100 rupees. We polished it into different forms of jewelry and now we are exporting it to the rest of the world at 115 rupees. Okay. So 15 rupees has actually been the value added in the economy. If I bring in raw materials and I don’t export processed inputs out of them then my value there’s no value there’s no real growth that’s taking place right so in this case um I would also like to talk about the definition the calculation or the formula of GDP which is consumption plus investment plus government purchases plus net exports notice it’s not gross exports it’s net exports so removing the import exports minus imports So removing this import of 100 rupees whatever is left has been the contribution of GDP in the economy. So um of course now the bigger lesson specifically than what does the GDP tell you? Does the GDP give you the entire picture of the economy? I’m sorry it doesn’t. Um it it might be so that the economy I mean there might be you know the finance minister coming in as saying the economy is growing at 10%. uh this year that does not mean that there has been a real growth or that every class of the society in the country has been benefiting to a great extent. We need to see the inflation picture. We need to see the inflation expectations picture as well. We need to see the geopolitical factor which is where the balance of payments come into the picture. And uh so it definitely gives you an idea. It’s always advisable although again I’m repeating the government is not very fond of real numbers but it’s very important for us to view the real numbers how much has been the value added or the real growth in terms of GDP instead of looking at the nominal terms right thank you so much for always making this conversation so incisive uh the columns that has mentioned that she’s written we’ll link them in the description for you please read them watch them we’ll be back again next week with another episode of the economics.