Rethinking Indias Growth Story

TITLE: Rethinking India’s Growth Story CHANNEL: Carnegie Endowment DATE: 2026-05-20 ---TRANSCRIPT--- unabashed.

The most unpredictable becomes a headline. [music] The most volatile, outrageous behavior, unsubstantiated narratives, a battle of personalities. Welcome to Grant the Masha, a co-production of the Carnegie [music] Endowment for International Peace and the Hindustan Times. I’m your host, Samil. India’s growth numbers shape how we understand everything from jobs to investment to global standing. But what if those numbers don’t tell the full story? New research suggests India may have both underestimated and overestimated growth at different moments over the past two decades. That insight opens the door to a broader conversation about India’s macroeconomic choices from exchange rate policy to electricity pricing to the quiet persistence of trade barriers. To discuss these issues and many more, Abhishek Anan joins me on the podcast today. Abhishek is the founder and managing director of insignia policy research and a visiting fellow at the Madras Institute of Development Studies. He’s previously worked as an economist at the World Bank and was a member of the Indian Economic Service working in key positions throughout the Indian Ministry of Finance. Together with Arvin Zurman and Josh Felman, Abhishek is the author of a new working paper published by the Peterson Institute titled India’s 20 years of GDP misestimation new evidence. I am pleased to welcome him to the podcast for the very first time. Abhishek, so good to see you. Thanks for joining us. Uh, thanks a lot, Milan. Thanks for having me on your podcast. So, I want to start uh with this paper that you and Arvvent and Josh have just just put out. We will link to the paper in our show notes. I think many of our listeners may not have read the paper, but they’ve probably seen the headlines from the media reporting uh around your paper. Um, in this new paper, you and your co-authors argue that India’s GDP growth between 2005 and 2011 may have been underestimated while growth between 2012 and 2023 may have been overestimated and often by fairly consequential margins. Let me just start perhaps by asking you what motivated you in the first instance to kind of revisit this question of GDP estimation and what convinced you that something wasn’t adding up and that this was something where you needed to really dive deep? Uh yeah, Milan. Basically I think uh you know it was not me initially but uh Arrin when he was the chief economic adviser who had an issue with the new methodology whenever when it was launched and implemented in 2015 and if you just look at his writing because one of the criticism that he often faced is that uh you know he has been speaking about it after leaving the government but actually when he was the chief economic adviser his first uh survey that he wrote And there he had a small box explaining his issues and why he thinks the numbers the new numbers that that came out of the new uh base 20112 was puzzling for him and he followed it up with another uh chapter not a chapter but again a small box in the following year’s uh economic survey uh my own uh of course I was working with uh with him on some of these issues uh and again we followed the work even after he left the government and in fact he wrote a paper uh explaining in detail why he feels it is overestimated and by magnitude of around two 2 and a half percentage point. So it’s basically Arvind who has who had an issue and he thought that there are a lot of puzzles which are not explained by the new numbers that the government released a and for me I mean of course I was working with him and there were one or two indicators which convinced me nothing very technical and I don’t think there one needs to do something very sophisticated but for example if you look at the period 2011 onwards all the key macroeconomic indicators be it exports imports investment, bank credit, foreign direct investment, all of these indicators, key macro indicators, they have collapsed at by a fairly large magnitude. If you compare the period of 2005 to 111 vis 2011 to 2023 whereas the GDP number that you would you would expect that if there is a collapse in each and every macro economic indicator, the growth will fall as well. But you don’t see that in data. So that’s you know one smell test. Uh the second and this is what Irvin wrote in his survey as well. Look at the year of the demonetization. That was perhaps the largest monetary policy shock that the an emerging market economy has faced in recent years. And one would expect if your currency is contracting by such a large magnitude your nom forget about real but at least your nominal GDP would face a decline. Interestingly, what you see is that there’s a huge contraction. 85% of your currency goes out of circulation. But your nominal GDP, it surges from around 99 9 12% the previous year to around 11% a year demonetization happened. I I think just these two small data points were enough at least for me to get convinced that there is something off and we need to understand GDP data better. Maybe we were wrong and we need to understand all the technicalities but certainly there is something not right and somebody and specifically people in the government they need to kind of look at these issues and try and understand it in better. So you know it goes back in time starting from 2015 the you know very first few months when the data was released uh that Arvin started writing about it and I have of course later worked with him on some of these issues. So I want to Abisha get into a little bit of the the the kind of methodological issues that you raise um and we’ll try to do that uh as as best we can so that a broad audience can kind of follow but there are essentially two core methological issues that your new paper raises right and the first is one of the shortcomings of the way in which India measures GDP is that it uses the formal sector of the economy as a proxy for the informal sector. And the reason that this is a problem building up what you just said is the latter, the informal sector was hit by a kind of triple whammy of shocks. First you had demonetization, then you had the introduction of the goods and services tax and then finally of course you had the co 19 uh pandemic which hit India particularly hard. um help us unpack how this proxying kind of works in practice and and why you think it has led to biased estimates. Yeah. So let me try and explain it uh as maybe easily as possible for the audience. So basically as you rightly pointed out for the informal sector uh which is a problem not just in India but many of the emerging economies I mean it’s difficult to track what is happening there. I mean the data system perhaps is not that mature where we can track the informal sector that well and wherever possible maybe we directly try and observe the informal sector but in vast majority of informal sector we kind of proxy their growth through the their counterpart in the formal sector and let me try and explain what that means. Say for example manufacturing. Now uh for formal manufacturing the way to estimate it is basically looking at the annual survey of industries that the government does on an annual basis and you get the data from there. For informal sector again the proxy is whatever growth that we observe as per ASI we apply the same for the informal sector and similarly many of these sectors where we do the same for example transport and communication uh we proxy the growth in the informal sector through the observed growth of motor vehicle sales in the formal sector uh for example other issue is in some of these sectors where uh people think that okay methodology is right but there is a problem and I’ll explain what the problem is some of the sectors for example education and health we do not really use a proxy from formal sector but what we use there is we look at the consumption expenditure survey and what has been the expenditure on education and health and then extrapolate growth from there now the problem in India is that we haven’t done consumption expenditure survey I mean now we have started doing but after 2011 the first I mean 1718 it was supposed to be out but it was not accepted by the government it was J and then it was correct it never never got never got released yeah and it’s only h it only happened now I think in 2023 uh and 2022 23 and 23 24 so basically the growth in education and health in the informal sector we were we were proxying through expenditure household expenditure in these sectors but based on 2005 to 111 uh uh survey uh because of surveys were not done at the time that it was expected to be done. So there are all these issues. Now just one thing which I often you know uh as a push back here from people is that oh but why would you claim that it will lead to an overestimation now and not earlier? I mean the same methodology was being followed even prior to 2011 and as we show in the paper yes this method is imperfect but between 2005 to 11 and we show it through data government’s own informal sector survey data and if you compute the growth rate how informal sector was doing and correlate it with formal sector they were broadly moving in similar direction. So that proxying while not ideal was less of a problem uh in the prior years. The issue starts as you rightly pointed out post 2015 because it was the informal sector which was hit by three shocks that you mentioned and it uh and the sector was not that the formal was not hit but it was informal that was hit adversely much more relative to the formal sector and you see that there is a divergence in the growth that again we show through government’s own informal sector data that how now the formal sector and the informal sector the growth rates have diverse completely which was not the case earlier and That’s why post 2011 this proxy method is not that good a solution to what otherwise was a good solution in the past. So Abishek that was remarkably uh coherent and I think relatable for any lay person. Let me now challenge you further because I think the second one is is is even more technical which uh has to do with the use of deflators based on commodity prices and those have moved very differently from broader price trends. Right. So essentially this is coming to the crux of how you factor in inflation and price rise uh into the data. Can you explain um how this distorts GDP measurement? Right. Uh let me try and be simple. uh again uh not sure if I will succeed but I mean uh as we understand I mean we uh in case of India we majorly compute GDP or GVA in nominal terms first and uh for a very small sector for example agriculture which is computed based on production data so you look at actually you know what quantity produced of different commodities a and there you basically are computing everything in real terms But that’s not the case with major with majority of the sector and around 75 to 80% of the uh GVA or GDP are computed first in nominal terms and of course then you have to somehow deflate it to arrive at uh uh arrive at growth in real terms. Now the way to do it is generally you kind of look at uh the sector specific price levels right. So for example uh if it is manufacturing you would look at what is happening to manufacturing prices by how much manufacturing prices have gone up and then you try and deflate nominal values to real terms. Now the issue in India is that I mean it’s fine as long as you are using right set of prices for right indicate uh right sectors but that’s not the case. Uh for example uh vast majority of uh services sector and let me give you one example say trade and hotel and restaurant for example right where we use wholesale price index and not consumer price index or a producer price index. Now because we are basically using wholesale price index and wholesale price index are basically uh you know bunch of majorly uh input uh basic commodities that go into manufacturing for example steel, cement, oil uh which is being used to arrive at real value of what is happening in say hotels and accommodation. So that’s not the right uh prices that should be used. It should be something similar to consumer price index. That’s the price that consumers pay. Uh we shouldn’t be looking at the price that wholesalers pay and for a lot of uh sectors that’s what we usually do. The other issue is uh even for manufacturing I mean one argument that we make in the paper is that even wholesale price index is kind of outdated. It has not been updated. uh and if you look at the wholesale prices basically it should be tracking the key inputs that go into manufacturing but that’s not the case and you would see that it’s basically influenced the way we compute our wholesale price index it’s basically uh tracking oil price so everything you know uh what is happening to steel prices what is happening to uh cement prices what is happening to other intermediary input that go into manufacturing you would not expect it to be of course it will be influenced to some extent by oil but it’s the correlation is very very high so basically WPI is nothing but basically it’s tracking oil prices and that’s the problem so one even for manufacturing wholesale prices in principle should have been okay uh but it’s just that in India it has not been updated the basket and commodities that go into computing are very very old and needs updation and secondly and that’s the major concern for vast majority of uh services and even sectors like construction uh uh where we use uh wholesale price index which in turn is basically tracking oil prices to deflate everything from nominal to real. So Abishek let me now just kind of zoom out and try to give this kind of some what the major takeaways are for the the listener right I mean uh you just to reiterate what what we’ve said before is what you all find is that GDP growth between 2005 2011 may have been underestimated and the corresponding growth for the subsequent period 2012 to 2023 may have been overestimated. Uh just to kind of round this out, tell us why you chose that break point of 2011 2012 to separate the two and secondly what is the magnitude of the underestimation in the first period and the magnitude of the overestimation in that latter period. Yeah. So why we chose 20112 onwards? uh because uh the new uh base that India chose which is 2011 although it was released in 2015 but it applies to all the data starting from 20112 so basically 20112 onwards all our GDP number is based on this new methodology uh whereas before that it was based on the old methodology of 2004 5B so that’s the simple reason why we kind of look at before and after because of course there are some issues with the new methodology and that’s why We wanted to look at what happens after 2011 12. Now in in terms of magnitude uh so for the period 2005 to 11 uh what we understand and we explained in the paper the magnitude of underestimation is around 1 and a half percentage point. So the official growth number is around uh if I’m not wrong around 6 and a half but it should be somewhere close to 8%. for uh the subsequent period 2011 12 to 2023 the growth seems to have been overestimated by 1 and a half to uh 2 percentage points. So the official growth would be 6 or 6.1% but it should be around say as per us 4 and a half uh to 4 to 4 and a half uh% on an average every year. So I want to just kind of tie this to kind of where the debate is in India right now. You all wrote an op-ed for the Indian Express which we’ll link to where you laid out some of your findings but you also said something I found very interesting which is that you give a lot of credit to the Ministry of Statistics and Program Implementation known as MOSPI um which oversees this uh process and is under kind of relatively new leadership in the past couple of years. And you note that your work is both complimentary as well as complimentary in its recent revisions. So it it it’s it’s it’s working alongside the work they’re doing but also giving them credit. Tell us what you mean by that. uh complimentary with I uh because I I think genuinely in last one one and a half years uh the Mosby is doing good work and there is a lot of activity all of a sudden happening and you would see lot of new surveys being launched uh and also the old ones that were irregular happening on time for example the survey for informal sector now happens every year uh and it wasn’t happening earlier I mean it was supposed to happen five once in five year earlier but it wasn’t happening even once in five year but now you would see that happening every year uh similarly they have launched a pilot for surveying the informal in construction sector and as of now we don’t track construction sector which is big in India uh similarly CPI has been updated GDP revision itself the process itself was very very consultative this time around as opposed to 2011 12 when that happened because this time there were lot of seminars workshops talk outsider experts were uh uh invited lot of engagement that happened. So in that sense uh I mean full credit to uh the department and of course we do see a clear break from how it used to happen in the past vis how it is happening now complimentary with e the reason being I think what we have done it should inform uh the mos in its own work because what while they have updated the base and they have released numbers starting from say 2022 23 they have to also produce a back series uh they have to go back in time and maybe produce numbers for last 7 8 10 years I don’t know for how many years they would so that we can compare based on new methodology what the growth rates would have been in the past and what we are doing basically is using broadly the same methodology that uh Mosby follows with maybe one or two uh changes where we differ for example now as per new base they are now not proxying uh it would be wrong to not to that they are not proxying I mean But the level of you know the degree to which it used to get proximity it has come down considerably in the informal sector and that’s what we have done in our work as well because you know we had because you have the survey data available not every year but you know over a period of time and one can look at if you don’t proxy but just look at informal survey what happens and also in some of the cases where we use a different uh uh uh deflator and some of these deflators that we use they are using in their new methodology. In some of course we don’t agree and they continue to use what they used to do in the past but there is some level of convergence in our own work and the new methodology and and I feel that our work perhaps can inform them when they start working on the back series and they produce data for last 8 10 years. uh some of the work that we have done and we have written about in the paper could could could be useful for them is my hope. So uh Abishek let me now just pivot if I could this conversation to talking about a few other areas where you’ve done research and you’ve worked um and maybe let me move now from the kind of ministry of finance uh Mosby to the Reserve Bank of India the central bank and exchange rate policy uh you and Arbandon uh many of your co-authors have also written about the RBI’s management of the exchange rate of the rupee under the current RBI governor Sanjay Malhotra and You give him a lot of credit saying look the RBI has done a much better job than perhaps previous leaders in maintaining exchange rate flexibility allowing the rupee to sort of float but but that there’s still concerns uh for listeners who don’t track this closely you know what’s the downside of the RBI directly intervening to kind of defend the rupee to make sure that it doesn’t depreciate too much say visa v the US dollar right So we uh that article that you’re referring to so we were basically very critical of the rupee management starting from late 2000 or mid 2023 to 2024 where I mean if you look at the currency and the exchange rate it was basically flat. Uh and the downside risk to that is that of course what one people generally understand is that okay you you know if your currency is not undervalued but fairly valued and for India that would have meant uh allowing depreciation to happen it would have boosted our exports that’s of course partly the reason that’s one second the issue when you try to defend currency and don’t let it depreciate and find the right market value is that how the RBI would defend the rupee. It will have to sell dollar and buy rupee uh from the market which basically means the rupee liquidity tightens and the rupee is not as easily available as it should and that leads to increase in interest rate uh and which is you know not good for an economy like India where you want to encourage private investment. I mean we keep worrying about why private investment is not picking up what are the issues so many things have been solved. Uh a and in that scenario the interest rate is higher than what it should be. It becomes difficult for private sector investment to pick up. So that’s one reason. Second reason is why I mean basically what you’re doing is when you are trying to defend rupee and keeping it artificially high. So you are keeping imports in a way more attractive than what it should have been. And I guess letting the currency depreciate is much better a subsidy policy than doing all these PLIs and stuff and trying to help domestic manufacturing because here you don’t have to pick winners. So basically if you let the currency depreciate it makes imported input some of the raw materials more expensive and that’s a uniform subsidy to any industry in India who is in this business of producing some of these raw materials. uh a a and you don’t don’t run into this problem of big groups lobbying getting something specific for them uh as so basically there are few winners but lot of losers uh and rather than that just have you know this uniform subsidy for every industry in India that is trying to compete with imported inputs that’s much better policy than uh you know having PLI and selective interested sub uh subvention and some other benefits that the government does and and that can lead to rent seeking as well. So that’s broadly the issue. Hey Granamasha listeners, thanks for listening to the podcast. Putting this show together each week is a labor of love, but it takes a lot of work to put out a great show every week. If you’d like to support the work we do at Granthamasha, please visit cip.org/donate. Don’t forget to subscribe to us on Apple Podcast, Google Podcast, Spotify or on your favorite podcasting platform so you’ll be the first to know when a new episode rolls out. I mean so what you’re saying in other words Abishek is that if you decide as a policy or political matter that make India is going to be your objective and that you want to increase the manufacturing share of GDP which has been relatively flat over the last 10-15 years actually allowing the rupee to depreciate um uh would help your case and do so in a less distorted manner because essentially what you’re doing is is making India’s exports cheaper across the board without giving special favors to one business house or one state or one sector. Absolutely. Absolutely. And this is specifically important because uh I mean we keep talking about China plus one opportunity but that window is narrow. It still exists but it is narrow and the best way to exploit it is to basically give this confidence to the domestic manufacturer that they can compete in the global market. uh and uh one of the key way to do it is to let the currency depreciate uh that incentivizes domestic production and helps them compete globally. So and also I mean specifically for labor intensive sectors such as leather, footwear, apparel where margins are very narrow exchange rate is very very crucial. Uh and that that’s the sector where also a lot of job would be created. It will not be created in services sector or high skill uh sectors like electronics. The jobs are there to be created in apparel, leather, footwear, textile, food and processing. A and for them uh the exchange rate really matters because the margins are so low and how competitive globally these sectors are. So, so that’s why uh uh I I I personally feel that it’s of utmost importance that we let the currency find its natural value uh and not keep it artificially high. But Abishek, I guess I’m wondering, you know, how how do you think about the trade-offs in these things, right? So if you just take the case I’m just picking one off the top of my head like India wants to now be the iPhone manufacturer for the future and we see statistics coming out every month saying you know India now accounts for x share of global iPhone production and so on and so forth and so uh a lot of the component parts that are go into making a a cellular device are imports right which would be made more expensive no if if if if the rupee depreciated. So how do you think about that trade-off in terms you want to lower the the input cost but you also want to make your exports more competitive right? So just coming to your uh Apple example right uh and of course we are doing very well uh when it comes to exports but uh you know it is debatable how much domestic value addition happens in India and whether it has improved over time or not because of course when a new industry is uh uh setting up here it will take some time for local or domestic value addition to happen and at least my sense is that it has improved over time. Now of course coming to this question of what happens if a rupee is artificially high. Now if rupee is artificially high. So basically then imports are cheaper right and then some of these components that go into manufacturing mobile phone. Apple will have less of an intensive for example to try and get its partners in India and produce it here. it can very well uh import it everything from outside because uh because because the prices are low the imported prices are low and in in a in this case actually if the rupee depreciates there is more incentive for Apple to try and nudge its partners to relocate to India and produce some of these things here rather than uh importing all of it a and in that case my own sense is that the domestic value addition would improve Not that it is not improving but the rate at which it will improve would be higher than what we currently see in India. Uh you know Abishek one of the things that’s so interesting about your work is that it’s very eclectic. You work on many different subjects and all all of them are extremely relevant to the here and now. Uh I want to turn now to another place where you’ve done some work and that’s the power sector. Um this is again something that you’ve you’ve written recently u about in a couple of columns and in one recent column uh you’ve talked that you basically said look you know everybody knows that there are all kinds of problems with the power sector in India these have been well documented there’s a lot of data on this people have written about this but one of the things which has been maybe under appreciated is the macroeconomic costs of the failures in the power sector and I wonder if maybe we could just kind of start there at if you if you kind of step back and look at it from a kind of 30,000 foot level how do you characterize the core weaknesses of say India’s electricity distribution system the kind of core piece of this puzzle you know how would you what are the kind of stylized facts that you would point to right so one thing before I start answering what you were saying that and that’s right that many people commented once we wrote that article that you know all of this is known what is new here and what I just want to say is that that’s not right. I think our understanding of power sector is very very wrong. One basic fact we all look at how much power subsidy government is giving. I mean look we look at the budgeted numbers uh and that’s a very accounting method of looking at the subsidy that the government gives. And let me give you one example. So basically say for example a household uh it consumes electricity 100 units and the prices are set by regulator and the price that the regulator sets is say 4 rupee per unit but the government says that okay no we are going to give it for free and the numbers that everyone has in their mind is that okay per unit subsidy is 4 rupees because that was the price that the regulator said and based on that they compute overall uh deficit uh uh subsidy number and even best of the experts in India they always refer to that number and that’s completely wrong and you would appreciate it if you just think from an economist’s perspective because what is important is what is the cost of production of electricity and the cost of production of electricity is much higher per unit in India will cost roughly around say 9 or 10 rupees and uh yes for whatever reason the regulator sets it for rupee and then they will pass on the burden to uh some other sector. But the subsidy that we are giving to either agriculture or domestic uh households when they are consuming one electricity one unit of electricity electricity is not 4 rupees but 10 rupees because that’s the price and that’s a very high price and then we try to recoup some of those subsidy by passing on the burden. So uh in in a good scenario even say manu and it links to your other question uh say manufacturing they should also they should be paying say 10 rupee per unit which is the cost of production but they don’t they pay much higher because the government has to get subsidy burden shared with uh either commercial entities or industrial entities and they end up paying much more and I mean this is one uh overall taxation number that we compute and has it his book that what is the overall taxation that manufacturing has to pay. Uh so it it’s it turns out to be around 80 85%. That for one unit of electricity a manufacturing or a commercial entity has to pay and that has consequences for a country like India where we want to push manufacturing uh and it could be a sizable cost for some of the sectors for example textile where it it’s very very energy intensive. We want to attract lot of data centers their energy I mean they consume massive amount of energy and if you want to give them energy at such high prices they will not be willing to come and that’s why you see that government will give lot of subsidies to them and that’s why we are able to attract uh so so manufacturing in India really needs that uh support from the government where not that they should be subsidized but at least they should be paying the fair price uh and not not sharing the burden that should have been actually paid by agriculture and uh domestic households. Now what is one way I I think over time I mean this is a consensus that we have reached you know all the people that so many of us I’m not the only one but my other co-authors who work on this sector is that it’s very difficult to break this uh uh policy regime where you price it fairly uh for each sector and uh the other issue is that of course uh when it comes to distribution discoms they’re basically monopoly, right? Uh and there is no competition and then they are inefficient and then you have absolutely no incentive to become efficient uh to think about oh how can I manage my company better, how can I reduce my transmission losses. Uh I mean they just have no incentive and I think the way is either privatization and we have seen it happen. uh I mean Odisha I think 2 years back they completely privatized there is no public sector discom and I think it’s doing better now it will take time but it’s doing much better second allowing the industry to exit and you would see now uh the news items coming out every day that okay in uh in Andhra Pradesh first Google and I think now Reliance as well they have been given parallel licensing by the government so they’re completely off the grid they will have their own procurement, transmission, generation, everything. Uh because and that allows them to produce and consume electricity at a much cheaper rate for which otherwise they will have to pay almost double the rate. Uh and these are data centers again as I said that for data centers it’s very very crucial because they use massive amount of energy and if you want to attract them you have to give them this flexibility. So that’s what I feel. So at a macro level it’s basically a management and efficiency issue ownership problem and the only way to deal with it is uh that you will let privatization happen or at least competition that where you also have a private discom and a public discom uh maybe geographical separation uh but uh more importantly while that will happen after maybe few years it may take some time allowing industry and uh commercial entity to exit and manage things on their own. so that they can ma manage their costs better. uh you know Abishek you talked a little bit about the fact that the way electricity is priced imposes you know almost a kind of 100% tax on manufacturing right it’s it’s pretty significant there two other things that you talk about in this piece which I was wondering if maybe you could elaborate on a little bit which is uh first households are now receiving subsidies comparable to agriculture which is a pretty striking finding and the second is that a large share of those subsidies are actually going to middle and upper income households as opposed to the poorest. And I wonder if you could just elaborate a bit on those other two findings. Yeah. So uh so the first one I mean this uh your question I think was uh 100% uh taxation to manufacturing, right? Yeah. So so there’s kind of three things. You talked a little bit about the taxation on manufacturing. But I was also wondering about the kind of, you know, how do you calculate how much subsidies household receive because the fact that those subsidies are comparable to agriculture now is is pretty striking. And the second is, you know, how much of this is actually going to houses that don’t really need these subsidies who we might classify as middle or upper income households. Yeah. Okay. Uh yeah. So the first uh question uh that how did we come up with this number that the subsidy is now fairly evenly distributed because everyone thinks that okay it’s basically the agri sector where we have uh free power and not domestic sector but as you would notice it has changed in last few years and you would see now increasingly every election uh one of the I mean most loved schemes that any government either in power or in opposition they will announce is that okay if we come to power we will give X units of electricity free to domestic household. uh and it has changed things quite a bit in last say 5 to 7 years and in many of the states majority of the states what you would see is that domestic households uh they either get subsidized electricity and that’s that links to my previous point because people feel that okay there is no subsidy but even if you are not explicitly saying that 100 units free or 200 units free the rate that the or the tariff that the regulator sets usually are very uh it would be say 2 2 and a2 3 rupee per unit of electricity on an average whereas the cost of production is much higher. So that’s one the gap between what the households pay visa v what the cost and even if you consider efficient because of course part of the cost of producing electricity is because of inefficiency and in our paper we take out the inefficient part and then just look at what the efficient cost would have been and even taking that into account uh there’s a sizable amount of subsidy that goes to household and second because now many of the governments have explicitly committed that they would give 100 50 200 depending on the state units of electricity free to households every year. Uh that adds up to uh around 50 45 to 50% of overall power subsidy that goes to agri and households combined. Now why do we say that most of it goes to households? U very simple. So you know the states wherever we worked uh and we could do this analysis for example uh consider a state I don’t want to name any state but you pick any state suppose 200 units freeh that the government says that okay I’m going to give you 200 units free and if you look at the consumption pattern of the households that basically means that close to 85 to 90% of the household They don’t pay any electricity bill because their consumption is usually lower than 200 units. And then you have some states where in fact 300 units are free where virtually nobody pays any bill. So just imagine like 80 85% of households or 90% of households do not pay electricity bill or highly subsidized electricity bill. Now I mean uh I mean I mean it’s hard to argue that 90% of the households are poor in India when the government claims that perhaps poverty rate has declined to single digits in recent times. But even if you’re very cons conservative and you believe that maybe 25% 30% households are poor and rest are not. And based on that liberal uh assumption we do the calculation that okay 25 30% households maybe they are poor they need protection but rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest rest of the households are either middle class or rich uh what is now based on their overall electricity consumption what proportion of subsidy is going to reach visa v poor and then you would see and that same goes for electricity as well for example in Punjab I mean you have many many rich farmers and their share in overall electricity consumption would be very high. So maybe 15% will actually go to poor households and 85% is actually consumed by very rich farmers and then you do the calculation you would see that most of the subsidy is actually going to middle class and rich households in India. Wow. Uh I mean it’s kind of a a remarkable uh finding and again kind of links back to something that uh you all had done in in one of the surveys when Arvin CEA remember you had this great table right looking at different subsidy schemes and actually trying to quantify how much of each one went to the people who really deserved them. Um I I I want to make sure that we spend a little bit of time talking about your work on trade policy because this is something that’s very much in the news these days. India has become uh a very active um act uh player in terms of trying to strike trade deals particularly bilateral trade deals. So we saw one with New Zealand announced there was a mini deal with with Australia, one with the UK, one with the EU, one with the US, you know, we don’t exactly where it stands, but you know the both sides are still talking. uh you have this interesting paper with your colleague Naveen Thomas again we’ll link to this called free trade on paper protection and practice and one of the things that you point out is that you know uh while FTA’s free trade agreements are often framed as kind of tools of liberalizing of liberalization um Indian governments have often used domestic policies to offset some of those gains and and one of the FDAs you look at specifically in this paper is the free trade agreement between Azion and India. And I’m wondering if you could just say a little bit about what your analysis revealed in terms of the gap between what the intent of the free trade agreement was at least on paper and what the implementation actually ended up being in practice. Right? So in that paper uh we looked specifically uh the free trade agreement that we have with Ashan and basically looked at the apparel sector because the expectation was that once we had this deal with uh Ashan uh we the domestic industries the apparel producers in India they should have had access to uh zero tariff raw material that goes into producing uh apparel and in this case it was very important because Indonesia is world’s biggest exporter of visos which is one of the apart from polyester the second most important raw material that is required for modern apparel because now we are moving away from cottonbased to uh synthetic uh apparel right and visos is one of the key input and India should have benefited but that’s not what happened of course even before it’s remarkable that even before on paper uh the deal was signed and it became effective. Of course, there was lobbying uh things happened whatever inquiry and then the largest uh exporter of visos from Indonesia uh and of course China and other countries but for us Indonesia matters much more. They were slapped with uh anti-dumping duties that oh you are resorting to uh unethical practices and that’s why uh anti-dumping duties of x uh uh dollars per kg would be imposed on you and it was supposed to be for 6 months initially and uh it kept getting extended for many many years and it was only in maybe 2000 so it was imposed in 201 13 I’m not exactly sure now when the deal became effective But you know before the deal became effective just few months before that it was imposed and it continued for years despite this thing of having just for 6 months initially but it kept getting extended then what happens of course you on paper you have 0% tariff but then uh even if you are uh you know uh even if you have an FDA uh it doesn’t matter you don’t have to pay you still have to pay anti-dumping duties and that basically meant it nullified whatever uh the gains were expected to be and it made imported input uh cheaper uh sorry uh expensive as expensive as it was earlier. So basically there was no benefit of the free trade agreement and it’s not the case I can understand that you know if you have a do and that’s what we say in the paper that you have a domestic industry of visos there where are there lot of producers lot of domestic competition and you are trying to you know for I I give some benefit of doubt that okay there is an infant industry argument you are trying to protect but that’s not the case uh I mean basically we just have one dominant producer basically it’s virtually a monopoly in India at this one big firm that produces uh uh the product that we are talking about and then what happened is basically of course they were insulated from the foreign competition and they could uh continue to charge higher tariff in fact more than what they were charging earlier uh just matching the anti-dumping uh level prices to domestic producer and interestingly of course because they are also one of the big exporters And we show in our work that how the same commodity is being sold in India at a higher rate whereas in domestic of course global market they have to be competitive and they are selling it at the global or uh the world price level and we just use that gap that what it meant in terms of rent being extracted from apparel industry in India and who’s getting benefited is basically this one dominant producer and there’s no other producer here. Whereas your downstream sector is apparel industry which is highly competitive, lot of producers, lot of job creation that happens and India could have benefited from this sector but virtually nothing happened and when anti-dumping and we can discuss it later but of course anti-dumping duty got replaced with QCOS which were which are even I mean more brutal measure than even anti-dumping duty because virtually I mean you just cannot import anything and that was also imposed on uh the same uh Indonesia. So, so that’s how it has happened in practice. So on paper looks every everything looks nice and and that’s one thing I just want to mention is that many a times I mean I have heard this argument that oh free trade agreements are bad look at the free trade agreements what has India gained our export hasn’t gone up import has gone up all of that but it’s just that we have never really let free trade agreement to work the way it should and just to conclude that’s why FTAs are bad is not a fair assessment and that’s why I’m now hopeful that now because So whatever constraints and reason we are signing a flurry of FTAs hopefully uh it will be given a chance to uh you know work better than what has happened in the past. I mean just incredibly interesting. Abishek, you’re right. I want to just maybe end by asking you about this issue of kind of non-tariff barriers and you’ve written a lot about these what you mentioned just now QCOs which are quality control orders and there they have been used extensively by the Indian state to restrict imports. Um the government has recently scaled these back and it has actually claimed that move as a major reform. um something that hopefully will will benefit India in terms of the amount of trade it’s able to do. Uh I wonder if you could just tell me, you know, to what extent uh does the government’s moves kind of address some of the concerns that you and your co-authors have had or do you think it’s just a drop in the bucket and there’s still deeper structural issues when it comes to the non-tariff barrier side that they need to address? Right? So let me answer it in two parts. So one thing is it really a reform because now we do see India signing FTAs lot of QCOs being uh rolled back even tariffs when the government came to power starting 201617 there was a huge hike in uh uh tariff rates and Arvind and Shomitro has written extensively about it and they have a great paper on how uh the tariffs increased post 2017. uh now there have been corrections and uh governments usually they claim that major reform and I have written it about in the past and my thing what I say is that these are all self-inflicted pain I mean we have done it in the past and it’s not that we experimented with protectionism and then learned it is bad and now we are trying to correct it I mean in 1991 we saw I mean we learned and we course corrected I mean there is nothing new to be learned and gained from again going back to that era and being protectionist. So it’s certainly not a a a reform and uh so that’s one my worry. So while things have been improving and on paper it looks fine uh and some of these things are happening because there is an external pressure globally what is happening also there is a push from the US administration and that has certainly contributed to some of these changes that we see. But uh and this is what Josh and Arrwin they have written about in the past is that the state of the government I mean if you just look at some of their policies I majority of their trade policy uh it doesn’t give me confidence that you know they believe in being open and not being protectionist. uh so maybe slightly political but I I don’t want to get there but my my hunch is that or maybe I would just be skeptical that for how long uh will we allow it to continue or will things go back to what it used to be once the global scenario changes things settle down the war is over uh relationship with US changes for better do we again will go will we again resort back to some of these trade policies uh that we have experimented with in the past and we have miserably failed. Uh so I I I would be cautious. I mean I’m happy what they are doing but uh I would still be cautious and I would just wait uh how it plays out for the next say couple of years. My guest on the show this week is Abhishek Anand. He is the founder and managing director of insignia policy research and a visiting fellow at the Madras Institute of Development Studies. He’s also a co-author with Arvin Surmanium and Josh Felman of a brand new working paper published by the Peterson Institute titled India’s 20 years of GDP misestimation new evidence. Abishek um this was a pretty wide-ranging conversation exchange rates trade qos power sector GDP um thank you so much for educating us and I appreciate you taking the time. Thanks a lot. But I mean it was wonderful to interact with you and uh you know these discussions of course I also learned a lot and just to think through all these things with you on this podcast. Hopefully I did justice and uh the audience your audience will not regret if they listen to the podcast. [laughter] I’m sure they won’t. Thanks again. Thanks. [music] Thanks a lot. Grandantham Masha is a co-production of the Carnegie Endowment for International Peace and the Hindusan [music] Times. You can find us on Apple Podcast, Spotify, or wherever you get your podcasts. Don’t forget to rate and review. It helps other people [music] find the show more easily. For more information about the show, to support the work we do on Grant Theamasha, [music] and to find the writing we mentioned on this week’s episode, visit our website, grant themasha.com. Tim Martin [music] is our audio engineer. Asen Familii is our executive producer. Additional assistance provided by Andy Rabina. Thanks for listening and see you next week.