What Awaits India Ajit Ranade

TITLE: What awaits India? Economist Ajit Ranade interview CHANNEL: The News Minute DATE: 2026-05-21 ---TRANSCRIPT--- multiple fuel price hikes, a plunging rupee, higher duty on gold and silver and the prime minister appealing to citizens about what they need to do to help the country. Now that’s been the India story for the last few days. Now we know the context against which all this is unfolding which is the crisis in Iran. But that still leaves us with a lot of questions. For instance, what’s the extent of the situation the Indian economy finds itself in today? And is the crisis in Iran the only significant factor or are there more issues at play? To unpack and understand all of this and more, we are joined today by Dr. Ajit Rani, economist and columnist. But first, whether it’s decoding an economic crisis or covering the assembly elections, none of it is possible without supporters and subscribers like you. So, do consider supporting independent journalism. Scan the QR code on your screen and consider becoming a subscriber. Thank you so much for joining us, Dr. An. Um now over the last few days we’ve seen multiple things happening including the fuel price hikes, multiple fuel price hikes, the import duty on gold and silver being hiked. We’ve had the prime minister appeal to citizens about what they need to do and you know a bunch of other things as well. So we’ll get into some of that in a little more detail. But I want to start with uh asking you Dr. Are we facing an economic crisis and how is that likely to unfold in the coming weeks?

I don’t think this is a full-blown economic crisis or the balance of payments crisis that we faced in uh for example in 1991. It is not uh as severe a situation as back then. But it is true that we are facing a challenging economic situation on multiple fronts. On the currency front because the currency under pressure and it is sliding. On the current account deficit that is the shortage of dollars on the outflow of uh dollars through the stock market or otherwise on the creeping inflation both wholesale prices and retail prices and on the investment uh sort of uh stagnation or slowdown. And then of course there is uh the prospect of uh an impact of ill nino on agriculture. So it is not a crisis but since there are multiple factors uh and if they’re all coming at the same time it can be an extremely challenging situation for economic management. All right. And how do you see this playing out in the coming weeks? Yeah. So uh as I we it is something that calls for action to uh to kind of uh uh provide some resistance resilience to the economic uh challenges. As I said it is not a crisis but uh then you know there are no sharp definitions of crisis. Our standard benchmark is what happened in 1991 when the foreign nation reserves were pretty much down to zero. So that’s not what we have. Uh so what is to be done? So uh we should first take stock of where we are in terms of what strengths do we have? How is the economy in terms of how strong it can withstand withstand the challenges we are facing. So on one hand our stock of foreign exchange is roughly $650 billion enough to pay for 10 to 12 months of imports. So it’s not an immediate crisis. then our GDP growth rate the aggregate economic growth rate is still holding at around 6% and that’s you know even if it slows down maybe 5 and a half% so it’s not zero or negative we’re not in a recession then if you look at the inflation rate of course it has inched up uh but uh the latest data from April I think is showing something like maybe three three between 3 to 4% the wholesale price index which is something which producers face not consumer customers uh that has gone up to 8.3 so it’s higher still we are not nowhere near the doubledigit inflation that we experienced in 2012 13 around that time so each of these things uh petrol prices fuel prices of course they have gone up to $100 100 rupees a liter or 110 again this is something we have seen before but so uh these are I mean when you look at this uh it shows that the economy is uh in a shape where it is able to withstand at least some of these challenges. But what is to be done is that we have to ensure that we take steps so as to be able to uh protect ourselves from the inflationary forces to the extent possible. Uh protect ourselves from the uh sharp movement of the currency that is the sharp depreciation of the rupee with respect to the US dollar. we we need to find out how how how we can retain and attract investments especially uh from the foreign private investments whether in the stock market or even in the economy. So these are the things that we need to do. Some of them may require short-term or immediate response. Some of them of course will require uh medium-term longer term. They won’t take effect immediately. whatever we do uh you can see the impact of that over several months or a year. So there are multiple things that we need to do. Uh you mentioned uh foreign capital of course and that’s something that’s uh being discussed uh at length. It’s not something that’s happened suddenly uh but it’s been highlighted because of you know what’s been uh unfolding in Iran. Could you uh take us through what is the situation right now and why has this you know flight of foreign uh investment been happening? For instance, we had the investor richer Sharma say that it’s you know India is not able to attract this kind of foreign investment because it doesn’t have a strong AI story. So is that um I mean is that one big reason? Are there multiple factors? Yeah. So this is a fairly important factor. So let me uh dwell a few some more on this. So uh as you know India is probably one of the only large country uh especially in this region of East Asia or Southeast Asia which consistently has a deficit on its trade account or what is what is called current account deficit. What I mean by that is uh our import requirements of dollars is more than sorry yeah our uh import requirements is more than what we earn. When we are importing stuff, we have to pay it in dollars in a foreign currency. And the only way we can pay for the dollars is if we earn those dollars by exporting stuff. And of course, we can use some of the foreign exchange stock that we have. We earn foreign exchange by the uh sale of merchandise goods that is called things like petrol and diesel refined products which we export or manufactured products, industrial products, textiles, shoe, leather products. But we also as you know have a significant export called software services. So it’s not only manufacturing but also services and we get a significant amount of earnings dollar earnings from what are called remittances. We are the world’s highest earner of remittances by far and we have been number one for the last almost 20 years far ahead of other countries like Philippines. Earlier it used to be China also but we are far ahead. This last year we got $135 billion worth of remittances. These are this is money dollars which is sent home by uh Indian workers who are working in different parts of the world. Software earnings has earned something like two $200 billion. So these are big amounts. However, our import requirements are much higher $600 billion. So there’s always a shortage consistently for last four or five decades and that shortage of dollars is paid for by investors. So this shortage of dollars we are able to pay for that because dollars come into the country in the form of either loans foreign loans that is or more importantly investors who put money in India they put money into the stock market or they put money into uh green field you know factories and investments on the ground. So, so if a foreign company is setting up a steel plant here or a foreign company is setting up a textile park or or maybe uh something in manufacturing or a foreign company is setting up a software you know operations here all these are all foreign money which is coming in the form of investment flows. They are different from export earnings. These are investment flows. They are called capital flows. So that so what has been India’s story is that all our deficit on the trade account is more than offset by what comes in the capital account. Now that story is uh is fraying or is is is you know is weakening in the last three four years. It’s not it’s not recent. It’s not just this year. Last four 3 four years we are seeing steadily that the net foreign investment that’s coming into India is uh steadily declining and it’s close to zero now by the way. Now there is there are two parts to this. There is outflow of capital and inflow of capital. So actually what is happening is the inflow gross inflow of capital is still strong. For example, last year almost $88 billion of gross FDI, foreign direct investment came in. But the outflow has been increasing. So this is uh foreign money that is dollar money leaving in India either in the form of outbound investments, Indian companies making investments abroad or Indians buying assets abroad, buying land or going for tourism or paying for children’s education. So all of that is is now a significant outlook. I mean I don’t have the to exact numbers but basically if $80 billion are coming in more than $80 billion are going out. So the net is zero and that’s the worrying part that uh we have to figure out how to increase the net FDI flow because if we don’t get enough net FDI then our trade deficit will will widen the as I said the current account deficit that is the shortage of dollars and that will put pressure on on exchange rate that will put pressure perhaps on you know other other aspects of the economy. So there we need to find out I mean so it is one thing to attract more foreign investment into the country and another thing is to figure out uh why is uh the outflow of dollars uh you know accelerating what is the reason that the outbound in investment is accelerating. Now we need to this will require a much more granular analysis. This of course uh takes us back to the prime minister’s appeal uh you know first in second about 10 days ago where he was essentially telling um his fellow citizens to not consume imported goods which is you know whether it’s fuel whether it’s gold and also to not spend money abroad which is why he said you know don’t have uh avoid destination weddings avoid foreign travel for a year. So why why was he focusing on these uh this particular aspect of course he couched it in very different language in you know the language of patriotic duty but um why was his focus on this the root of all that is dollars let’s be clear it’s not about gold per se wanting to stay away from gold it’s not that he doesn’t want people to do foreign travel uh it’s not as if you don’t want to use fuel or you uh transportation all of these things because India last year India’s import of gold was $72 billion huge and uh India’s import of crude oil which is converted into petrol and diesel was more than $50 billion or 130 huge foreign travel I believe outbound foreign travel is something like 15 1720 billion all of these things require dollars and where do the dollars come from I told you the dollars have to come from our foreign earnings that is export earnings. But if the export earnings are falling short then they come from capital flows that is foreigners putting dollars into India in the form of investment in the stock market or as direct FDI but you know what in the stock market the story has been very very uh grim. the foreign institutional investor that is people who put money in the stock market they have actually pulled out they have taken out $40 billion $40 billion in the last uh uh one and a half years. So relentless uh selling by foreigners taking away dollars out so the prime minister’s appeal has to be seen not directly in terms of gold or foreign travel or or transportation and fuel burning fuel. It’s actually because we have a worrisome situation about the rapid depletion of dollars because if if uh outside money is not coming in, we’ll have to depend on our own stock and we have you know we have a comfortable stock maybe 550$580 billion but that may not be enough we if we if the crisis worsens and remember that our own foreign nation stock has what we call foreignation stock has a big component of gold uh the gold value has gone up. So you can’t use that. So if you take that aside then the actual amount of dollars uh is is at you know is is not that comfortable. So that’s the root of the I mean that’s the reason the prime minister is appealing that conserve dollars. It’s I think it should be understood that way. But I was also curious about uh you know how effective this kind of appeal for austerity measures is especially u I mean is it fair to place that burden on citizens essentially and uh you know apart from generating photo ops we’ve seen now a lot of ministers carpooling or reducing cavalcades or going on motorcycles etc but um I mean how effective is this going to be? So there are two angles to this uh one is that as you said uh optics that you can’t uh you you have to you have to uh you know consider the equitable aspect of it that is you can’t expect people to cut down on their LPG you know uh cooking gas and uh their transportation to go to office you know whatever vehicle you use when in fact they are seeing that there is no cut back if they don’t see any cut back on uh you know public officials for example foreign travel or uh or stand you know other display of that there is no cut back there or the luxury consumption of the of the richer segments then it it’s one angle that you know they doesn’t sound doesn’t appear to be equitable and then as you said it may be is it only just a photo op uh the other angle I think uh we need to consider is that let’s not only talk about austerity, let’s also talk about how can we attract more dollars because the whole thing is arising out of shortage of dollars. So if anything if you cut back in fact that may have an adverse impact on consumption spending which actually might in fact uh you know affect the GDP growth also uh may be detrimental but therefore while we are addressing the shortage of dollars uh only austerity is not the only way we need to think about how can we attract more dollars into the country and there is a third angle also a third angle would be that sometimes the it’s behavioral Well, you know, it’s psychology. If in fact people start thinking that he’s asking us to cut back on dollar uh you know, purchase of gold uh or is there’s a stiff import duty on gold, they may actually conclude that the situation is much worse than what the government is telling us and that may lead to even further panic buying of gold because gold is seen as a secure value against inflation. It’s a store of value, you know, it protects you against it’s a it’s a very liquid uh collateral. you can get a loan against gold holding. So that’s the third angle that you know sometimes the psychology may work in in a in a reverse way that people may think oh wait a minute the situation may be worse so they they may lead to like panning buying which is not what we want. Yeah because I think we saw people rush to gold shops immediately uh you know after the first appeal by the prime minister which was completely counter to what they intended. The uh other issues that’s of course been grabbing headlines is the decline of the rupee which you know every day we’re seeing what does this uh fall of the rupee actually signify how should we be looking at it beyond I mean obviously it’s an opportunity for political parties to say oh look it’s fallen again but what does it actually mean for the economy so normally a fall of the rupee might have indicated economic weakness but we actually have GDP growth which is okay, inflation which is not too high. It’s rising but not too high. Our uh the deficit on the trade account what is technically called the current account deficit is is sort of manageable. It’s it’s nothing extraordinary. So despite these macro signals being okay if the rupee is rapidly sliding down something more serious is going on. I think what that means is that our capital flows what I said the the foreign direct investment or foreign capital that comes into the country that is where the problem lies investor confidence uh the uh u I mean the ease of doing business for you know the are foreigners not coming in or or packing up from here because of uh investment climate. Uh just a few days ago we had this announcement that finally Tesla has decided to abandon its uh plans to set up a manufacturing factory in India. Some time back we had Whirlpool uh famous you know washing machine and white goods company uh scale back its investments. Yeah I can give you several examples. Um so uh so so the the issue is not on the fact that GDP goes with okay or inflation is okay sort of okay and uh the current account deficit is not so worrisome not alarmingly high it’s the the other things what is happening on uh our oil security you know the that is uh strategic petroleum reserve what what is called SPR what is happening to foreign direct investment the net foreign direct investment what is happening to our capital account? What is happening to our balance of payments? So, it’s there where all this uh rupee story is hidden or it’s not that uh suddenly what happens if it’s a if it’s an inflationary economy, the purchasing power of your currency is loses value. Like if I have 100 rupees in my pocket and the inflation is very high by the end of the year the 100 rupees is worth only 80 rupees because inflation has eroded the value purchase. That’s not what’s going on. It’s the the fact is the external value of the rupee is is sharply lower because of these influences. The the capital flows are drying up and our and our oil uh we have we have vulnerability on our uh oil security that is other countries like European Union all of those oil dependent economies they build resilience through large strategic petroleum reserves that we haven’t built up as much as we need. Should we also be looking at uh more uh for instance uh fuel hikes in the coming days uh most I mean now that there there was a report today about uh you know the possibility of more restrictions on imports. So is that something that uh citizens should brace for? Yeah. So now uh apart from the currency story the exchange story now we are talking about the impact of the oil oil price uh r spiking up globally. So when oil prices go up because of the situation in West Asia first the moment crude oil prices go up I mean they’ve gone up from 70 to $100 which is a almost a 50% increase 40%. What two three things happen. One is uh that our current account deficit is our dollar shortage worsens. The deficit widens because we have to pay more dollars for secondly because the uh these are you know the crude oil is refined by the petroleum refining companies oil marketing companies like Indian oil paretroleum indust petroleum and they sell petrol and diesel at the at the petrol pumps. uh they take a hit because they have not been allowed to raise u the I mean until recently it was still the price was had not gone up which means that they are paying more for the raw material crude but they only earning the same amount so I believe in their losses mounted to 1 lakh cr rupees that’s just the losses in the first 3 four months so first thing that happens is the current account deficit widens second is the losses are mounting for the oil company or the oil refining companies And thirdly eventually it’s going to feed into infl uh that uh uh in in the economy I mean the because transportation costs and all that and the fourth of course is that uh if the government continues to support uh suppress prices on LPG then the subsidies will rise fertilizer subsidy all of it related to oil and energy prices. So the fiscal deficit the government’s burden may increase. So these are multiple things that happen uh when dealing with this oil price situation. So uh some pain has to be spread around. Some of the pain will go to oil marketing companies. So their profits will uh their profit margin will has to come down. Secondly, uh the prices at the petrol pumps have to rise. So some pain has to now be borne by the consumers. Thirdly, the fiscal deficit will they will widen because some of P subsidy uh expenditure on fertilizer and you know LPG and all will increase. So it’s like trying to make an balance how to spread this pain eventually of course it all comes to the taxpayers. I mean when we say government is is bearing in subsidy burden eventually indirectly it’s it’s actually taxpayers. So but at least in the in the short run what mean it means is that spread the pain between oil marketing companies profit their balance sheet consumers paying at the retail petrol pumps and subsidy burden of the uh government you know finally I wanted to ask you Dr. day if the crisis in Iran were to be resolved you know say in the next month or in the next couple of months but uh how long will the recovery take for you know India and what should the government be focusing on especially to you know safeguard the interests of its weakest citizens. So let me answer that uh question in uh couple of ways that uh how are we going to deal you know the the even if there is a ceasefire you know first of all we don’t know where when the ceasefire will come and whether it’ll be a very clearly defined sometimes it just drags on so even if there is a ceasefire the insurance premium of shipping lanes has actually uh gone up so what is called the risk premium the geopolitical risk premium uh those prices have gone up. So it is not as if after ceasefire we’ll go back to uh a pre-war you know situation. So oil prices may remain high but the risk premium that you have to pay on shipping risk insurance and all that will also be higher. And there is also people have had to change their supply chains the routing the logistics all that is going to add to the cost. So this inflationary situation will be there. Secondly uh uh remember that there are effects which we did not anticipate. So for example I there is a story that uh the tirupur textile some some companies there who were exporting textiles and they had to uh depend on some critical imports from China polyester filament yarn and so on. So they arranged for all that and even though they they had to pay higher prices and their profit margins were lower but what they did not anticipate that all their workers did not have cooking gas so they couldn’t cook food so actually many workers left to go back to their villages. Now this is something this is a challenge which was not anticipated by some of the manufacturers there. uh another example is where uh let’s say India is trying to uh build resilience by investing more in solar energy so that we you know our energy mix should go away from fossil fuels and we we have been doing that we are the world’s leader in solar alliance but what we have to deal with is that uh the batteries I mean the even the components of the solar fabric systems are the batteries that you need to shift to Electric vehicles need uh minerals like lithium, cobalt, nickel, even processed silicon, silicon all that is still we are critically dependent on imports from other countries especially China and it’s not just the mineral the processed you know country like China has only 10% lithium of the world but they have 60% processing capacity and there are many other items on which there is critical dependency in China. So uh to answer your question that what happens after the ceasefire and if and when it comes we are going to deal with these difficulties. There are difficulties of second order effects. There are difficulties of higher costs due to disruptions in shipping and uh geopolitical risk premium insurance costs and uh there are difficulties on uh import dependencies and and there are there have been instances where the Chinese have decided that they’re going to halt certain export of critical minerals and they have weaponized some of these things maybe for reasons of their own uh uh security in the sense of their own commercial interests or perhaps for some other reasons. So this is the year which we have to deal with the fallout of the West Asia conflict uh plus the second order effects of inflation and supply chain disruptions the pressure on the currency and then to top it all again there is the this anxiety or some apprehension about uh El Nino and impact on the karif crop. So we’re looking at a very difficult year ahead even if and when the ceasefire were to happen. Um but thank you so much Dr. Randai for joining us and helping us understand what this landscape looks like. Thank you. Thank you very much.