The Numbers Game With Rahul Kanwal LIVE | India's Economic Challenge | NDTV 24X7 Watch LIVE | Debate

Added: 2026-05-27

[00:00:00]for India, Dava Mera, founder, chairperson, managing director of first global and hush Gupta Madusan, equity strategist at ionic wealth. Thank you very much to all our guests for joining me on this special show. I want to start by looking at a graph on petrol and diesel prices. This of course everyone watching at this time acutely aware of.

[00:00:19]But what you need to look at here is the extent of underreovery for oil marketing companies and the extent to which oil prices will need to be increased. Petrol and diesel prices will need to be increased for these companies to start breaking even. So petrol from the 14th of May in Delhi gone up from 94.77 to 102.12.

[00:00:40]Break even starts roughly broadstroke calculations at about 115.12.

[00:00:46]Let's for a moment take a look at diesel and then I'll ask our guest the question whether the government and the oil marketing companies are on the right track in terms of how the burden is being passed on to consumers and the extent to which petrol and diesel can become more expensive given what's happening globally. This is diesel on your screen right now from 87.67 rupees on the 14th of May to 95.2 rupees uh on the 25th of May. break even starts at 108.2. So still you've got about a 13 rupee deficit for the oil marketing companies subsidy which these oil marketing companies are bearing because they're keeping petrol and diesel prices low. So let's just on this point start by going across to our guests. I'll start by going across to Sujit Bala first on the government's approach the oil ministry's approach at the moment on passing oil passing on the fuel uh burden to consumers. four hikes in the last uh in the month of May. Are we on the right path in terms of how this is being pushed on to consumers? Do you see this continue? At what point will the government say if we take it any further it'll break it'll break the back of the Indian consumer and therefore let's pause it. Let's get you off by talking about the manner in which petrol and diesel prices are going up and share with our viewers your insights on the extent to which you think petrol and diesel prices could go up further.

[00:02:09]So first you mentioned correctly this is a global problem. This is not a individual country problem and this problem has come up now fe starting in February uh or maybe in March. So the response has to take that into account.

[00:02:30]We are not unique. We are not the only ones facing this problem. And I think so far the government the fact that it has agreed to hike up the prices and perhaps even go up there's no reason why we can't go up to 115 uh for them to get there. I think the larger question which I hope we address what happens when we get back to normal the West Asian war is over then what should the respective policies be? I think that is much more critical than the reaction to the very short term which there really is not much to say other than we should move up uh towards the international price or the break even price.

[00:03:17]>> Gupta, this is where it's hitting consumers. This is where it's hitting every person watching NDTV. They're alarmed by the fact that uh prices have been hiked up four times in the past few days. But the reality is this is part of a much larger global problem. The government really has no option. But you're also seeing the kind of political attacks coming the government's way. To what extent do you think the government can increase because break even is still about 13 rupees per liter at least uh for diesel for example and same for petrol. How much do you think the government can increase petrol and diesel prices by before inviting a serious backlash?

[00:03:52]So I think look um we have had a large cushion uh in terms of our prices were already very very high related to what the other countries had done. We were taxing the hell out of petrol consumption etc. So in that sense maybe we have to move less than other countries have to do. uh but I would say given that the rest of the world is moving about 25 40%.

[00:04:22]We should be at the lower end of that scale uh perhaps 20 25%.

[00:04:27]But have in mind I think the way to handle it if but if somebody were to ask me is that we recognize it's a problem.

[00:04:36]We recognize it's likely to be a short-term problem but you know people have been saying the war is going to end. what's going to end tomorrow but it's not but then say that because of this crisis international crisis every country in the world is facing this we have to do our share >> okay Dr. Ratin Roy, your initial thoughts on the manner in which the fuel price hikes have been passed on to the consumers, the extent to which this can go on and the uncertainty about when the war ends, if it ends, and what happens to fuel prices uh once it ends and how long they stay high before they start coming low. All those massive uncertainties in which these decisions are being taken.

[00:05:19]>> Well, unlike many people in India, I hate talking in the future tense. So, we can talk about that later, but let me stick to the present tense for a I love the present tense. Uh at present there we know two things. One that the price of oil is going up. We also know that the impact of that not just on consumers pockets but also on the balance of payments of the current account deficit is likely to be high and accelerating the higher the price of oil goes. That is if it goes from more than $100 a barrel internationally up to 120 we will then start have to having to worry about the macroeconomy. We're not there yet.

[00:05:54]uh and we also know as Sojit said that the government has a buffer the government has the the government has a buffer which doesn't protect India but can protect citizens temporarily from the full impact of the oil price hike which is to lower excises on oil and diesel. Now that will then impact on the government budget. we will have to then make do with a higher fiscal deficit or the government should have to cut some of its you know subsidies and compensatory expenditures that it has got the habit of giving. So these are difficult decisions going forward but what I'm in no doubting is that we should prepare for the long haul in terms of elevated oil prices. That's the intelligence I'm getting in London as well. No one is saying that even if the war stopped in in 15 days or a month, the unraveling of oil supplies will take anything less than seven to eight months because inventories have to be replenished. Uh infrastructure has broken down that will have to be refurbished. Countries that are more powerful than us and richer than us been stockpiled faster than we are able to.

[00:06:53]So for all these reasons, we have to prepare for elevated oil prices. Now the question is how much elevation can we pass on to the consumer? And here the government has one bad option which is what the old government did the congress and I don't recommend that which is to let the oil marketing companies make losses and worry about it tomorrow. But within a fiscal year I think government has to make up for that. The government can make up for that essentially by passing on oil the the the wholesale oil price to everybody including on fertilizers and then can take compensatory action by imposing subsidies by by giving out subsidies as it has done very effectively through the DBT mechanism to particular groups of the population that it feels will be disproportionately hurt which are unfortunately not the viewers of NDTV. I mean a entirely different class of people. People who are less fortunate than those who watch MDTV. People who have to make do with much less on a daily basis. People who worry about the impact on fertilizer on food prices. All these things can be contemplated as in terms of a larger strategy. So to conclude the consu some consumers can be protected. There will be costs because this is a price shock. This price shock is not going away in the short run and therefore the government has to plan whether it takes this price shock on budget and to what extent and to what extent it is able to pass on the cost to the consumer while protecting vulnerable groups.

[00:08:14]>> Hush Gupta in the popular imagination the saying goes that you know government ensured that consumers didn't have to bear extra fuel prices till the election season were on. The moment the election season is over they're being passed on.

[00:08:29]They're not being passed on in one go.

[00:08:30]They're being passed on uh in a staggered step-by-step kind of fashion.

[00:08:34]But people who are watching and people who are having to pay the brunt are obviously upset. Has the government been able to reach out enough and explain why this is being done and also respond to uh the question about the extent to which you think petrol and diesel prices might have to go up because we're seeing OMC's make massive under recoveries and there therefore if they have to start at least breaking even petrol and diesel needs to go up by more than 13 rupees even now.

[00:09:03]>> Uh thank you Rahul. I think on the second question I think your broad break evens are correct. uh they need to go about about 10 to 15 rupees at current prices. So there is no quibbling there.

[00:09:14]I think on the first question about being able to explain I think any kind of economic tough decision is always difficult to explain. Ideally we should be having completely deregulated prices of petrol and diesel. um so that uh you know consumers like they do in the US uh they have daily varying prices and this is not a political discussion given that is not the case uh the second best scenario is what the government is doing which is to stagger it out uh small raises small raises etc and uh I think that is the right step to go because let us say the war ends um in a couple of weeks or one month and suddenly crude is not $100 on the rent it's maybe $80 and then the break even is lower at that particular point. You don't want to then be seen as having overshot too much but fully agree with the two earlier panelists that on this particular point uh the government has to make sure that the price signal of imported energy is passed through but I also agree with Dr. Dr. Bala that the broader discussion which is more important is how do we look at a balance of payments going forward once this immediate crisis is solved. Let's now come to the second part of the show. I started with fuel prices because that's what impacts consumers the most. Uh in the second part I want to deal with foreign investors and I have three I want to show you. The first and they largely make this point that foreign investors in the equity markets have been net sellers. They've been going to South Korea. They've been going to Taiwan. They've been investing in the United States. They haven't been coming to India. And therefore, foreign portfolio investments month have been in the negative. In May so far, they're down $3.1 billion. $3.1 billion has been taken away by foreign investors from the Indian markets. In March, it was a record 13.6 billion. In April, 7.56. And if you go back on this graph, you see uh starting December 2025, uh FBI has been flowing out of the country rather than coming. And even before that, in a few months like May and in October of 25, more foreign money came in than went out in the equity markets. But largely the graph has been negative. So a uh does it stay this way?

[00:11:30]Let me get Ratin Roy to kick off.

[00:11:32]Instead of taking all three graphics at the same time, let's do it one by one.

[00:11:35]Foreign portfolio investors. There's been so much talk about money being pulled out of the Indian markets by these foreign investors going to Taiwan, going to South Korea, going to the United States. How much of a concern as a macroeconomist, how concerned would you be about this? Ratin Roy.

[00:11:50]>> Yeah, there there are three overlapping questions if you take this thing very calmly. First we have to understand that there is no immediate macro economic danger even with a likely current account deficit of hundred billion which will entirely have to be financed by a diminition in reserves. Uh that is something that we will be able to manage this year and possibly the next. The larger question is we have to admit something which I found Indians have tended to paper over. India runs a structural current account deficit and that means that every the the reserves we have are not ours. They belong to someone else. So the moment that someone else decides for better or worse that India is not a place where they want to net put in money, the only way they can finance our current account deficit is by reducing reserves. This is a structural problem which I've been urging people to take notice of. But frankly in our hubris no one has done that. We are not like China. We don't run a balance of payment surplus. We don't run a current account surplus. And all that talk about you know the service account managing this and all that now it has all come to not uh one small shock mediumsiz shock even has put our current account in a situation where we have to watch. There's no panic yet but we will have to watch it. Now what do we do? Inevitably there's the only things we can do is a combination of devaluation and trying to kick in the several credential measures government has taken in the macroeconomic fund including swaps and we can look at ways in which we can you know have in sort of good deal external commercial borrowings to come in to somewhat alleviate the dimunition in reserves uh so as to stem the problem. Now with the depreciation we do have a problem. The more you depreciate, the less attractive investing in India and dollars becomes.

[00:13:37]But the more you depreciate, the less urgent becomes the balance of payments difficulties. There's a path you have to walk. Not unsolvable. It's an equation.

[00:13:44]That's all. There are trade-offs. It's it's solvable. So, I would say in some we will have to tolerate more devaluation than we have now. We will have to give up this school boy beg your pardon BJP RSS nonsense has gone on for the last seven or eight years of strong rupee and a very foolish RBI policy in the early 20s of keeping the rupee strong bajut like some kind of dangal wrestler the rupee will find a leverage on its current account deficit we have to make sure that people don't short the rupee we have to make sure there's no volatility and that the government of India has shown it's still capable of doing and I'm particularly happy with current RBI policy on the matter They've been calm. They've taken hits well and they have intervened when necessary, not ideologically. If we >> I was hoping to go to the rupee next, but you've jumped to it straight and the two are linked. So let me just show what's been happening on the rupee now and uh the extent to which the devaluation can continue and I want Gupta to respond to it because the rupee is down about 5% and if you compare with other currencies uh it's more down than the Japanese yen uh more down than the euro the Saudi realal the dirham in the UAE etc. So the rupee is under pressure.

[00:14:54]The question Madu is and this is also part economics, part political. Ratino Roy says it should never be political but if the rupee for example were to slip below 100 rupees there would be an outcry. You can just imagine what Rahul Gandhi the Congress and Trinumul and everybody else will say and this is what the BJP said while they were in opposition. Ratin Roy says just deal with the politics. Leave it on the side.

[00:15:16]Get on and do what you need to do with rupee. Is that even possible or do you think that's just frankly wishful thinking? Hush >> uh Rahul I think it's not so much about uh the political aspect which I anyways I'll leave to the political experts to discuss. I think the broader point is if you let the rupee depreciate too much a certain reflexivity kicks in and the problem at that particular point is foreign investors who are seeing their portfolio values going down in dollar terms then they jump onto the bandwagon and you have a vicious cycle. So sometimes the markets overshoot and I think that's what Dr. Roy also acknowledged that the RBI's stated policy is to not target a particular rate but to make sure that volatility in the market is low. Uh I don't think the RBI or the government has had a strong rupee policy in the last 5 to 10 years.

[00:16:04]I mean if anything else the forex reserves have gone up in the last 5 to 10 years which means we are buying on balance FX reserves even adjusting for the short forward book. uh see uh if you look at all fundamental parameters adjusting for the dollar cycle adjusting for the fact that India's purchasing power parity GDP is now almost five times compared to its dollar GDP the rupees by all metrics actually uh undervalued and oversold the re the broader issue is because domestic flows have been very strong the FBI flows have been priced out just to correct you also Rahul in the in this year right year to date Korea has seen net outflows of foreigners So why why is that? Because domestic money in Korea has also massively invested in Korea. So even though the narrative is Korea has done very well, it has but it has been a net sell as far as FBI are concerned. So the real issue is because we uh FDI and FBI on a net basis has gone to zero or negative in the last couple of years. What used to be an outflow on the current account but is substantively a capital account issue which is gold $72 billion last year or 2% of GDP now hurts much more. So earlier foreigners were diversifying into Indian asset and Indians were diversifying into gold. Now because the first part has stopped on a net basis partially because of strong domestic flows which on the whole is a good thing the government has to take some macro potential measures not only about increasing the duty on gold but also enabling more internal recycling. So I think a cut on the capital gains tax for gold, more uh monetization schemes which have done not very well so far, more gold loans being encouraged, those are ideas which can really really close the gap because X gold India has been running a current account surplus for a long time and I don't think this point is acknowledged enough. Okay, >> Dame, I want to show two sets of uh data. One is to do with the market capitalization of the Indian stock markets where India was number four globally has now slipped to number six and South Korea is now quite close to potentially can overtake as well.

[00:18:08]Taiwan's gone ahead of India and so there you have it on your screen right now in trillion US dollars India versus the other. So India had gone to number four now being overtaken by Taiwan and Hong Kong slipping now below Japan below Hong Kong below Taiwan uh to number six.

[00:18:23]Second is the fact that the price earning multiples of the Indian stock markets are still more relative to other uh other other comparable markets. So this is the nifty which has largely been rangebound since July 24 for example from about 24,141 to about 23,97 actually seeing very serious downward pressure. So this is one because it affects potentially the psyche of the Indian domestic investor who so far thought it's almost like a fixed deposit dnamera that you do an SIP and that there's so much advertising around it as well that you do an SIP it goes to the Indian markets the markets are strong they'll help you grow this is what you need to do at what point do you think those assumptions come under stress and domestic investors start getting very you've got the foreign investors very already how what's your understanding of the mental makeup of the domestic investors the small SIP investors as a group as a cohort.

[00:19:20]>> So Rahul first of all I love the fact that whatever happens in the market we find a neat little narrative to fit this. So the India's P ratio is far higher in 2024 but 2024 everybody thought uh you know money was there for the making and every all my fellow fund managers were uh sort of uh hawking the quote unquote India growth story now you know people are launching gift city funds and saying go global uh but neither extreme is quite correct and uh yes India was about 4% of the world's market cap it is now sub 3%. uh but the thing to remember in all of this is that sentiment is a contraindicator and this is not my opinion this is research studies around the world that it is when you are feeling that money is very easy to make when the general sentiment is of buoyancy as I said in 2024 there were people who came to me and said you know I'm not looking for unrealistic uh returns 30% compounded is fine by me that is an unrealistic expectation but at that time nobody wants to here that manage risk and look at this and all that. Now you're going to the other extreme and say that should I stop my SIPs. The equity markets are never FDs.

[00:20:39]So that's any every equity investor should remember that equity returns are not predictable on a 1 2 3ear basis. And uh people think equity being volatile means that one year I'll make 25% and the next year I'll make 15%. No, next year you can make minus 30 also. So that's the nature of equity markets. Uh but as I said, sentiment is a contraindicator and the very fact that there are so many TV programs nowadays enumerating the risks in the market is the reason why the next period returns may well be at least in probability terms higher than normal. saying P is higher or what is the P even relative to our own history is not very meaningful because unless you adjust for the fact that of the sectoral differences. So India alone if you look at the Nifty and Sensex uh you know 20 25 years ago there were no banks now banks are the highest weightage at one point these indices were full of PSUs. Then in between 15 years we forgot that PSUs were even listed. So but if you look at sectorally we are not at extreme ends of the valuation uh spectrum either versus history or I mean cross country PS don't make a whole lot of sense but to whatever extent you want to look at that uh so I would say that what you know for uh the retail investor never be 100% in equities not even if you are 25 and in a good job and uh but whatever is your equity allocation most of the time it uh makes sense to remain invested and certainly I don't think we are at an extreme end where you should get out of the market or >> Dala uh the fact is that foreign portfolio investors have largely been shying away from investing in India outflows more than inflows month after month for the last several months what are your recommendations to regulators and to government and can anything be done at this moment to change that or do you think that because of what's happening in West Asia because of what's happening with the AI super that there's very little that this government can do or can it to try and change that at this moment here and now. Sujit Balam.

[00:22:48]>> Yeah. So absolutely look I think uh my at least my policy recommendations and how I look at India and the world has nothing to do with West Asia. This is a crisis. This is a global crisis and whatever forecast anybody makes is bound to be wrong a weekends or two weeks ends. So it's this is not the time to uh look at whether RP valuations are there or whatever. Um that's for the market analysts. Now one fact remains and that is that are we has our economy followed basic fundamentals? Now in terms of basic fundamentals, I want to politely disagree with my good friend Rapan Roy about the current account deficit. Look, if you are a growing economy and you are the developing economy, having a current account deficit is absolutely necessary. It adds to your investment. What we need is higher growth and we are at a stage where we can uh promise and look for higher growth.

[00:24:04]So current account deficit is not the problem. Second is the rupee a problem?

[00:24:10]As Har rightly said there is no metric that shows that the rupee is overvalued.

[00:24:18]All metrics show that the rupee is undervalued. Third thing, why is there a problem with the rupee or with foreigners selling Indian assets prior to February of 2025 and that's where I think our fundamentals are a little bit off.

[00:24:41]We want growth for growth the portfolio investors FBI that's important and you know I once was also a stock market investor and manager etc and those things fluctuate and sometimes it gets overvalued sometimes it gets undervalued and life goes on however FTI is genuine investment which helps the growth process process which helps technology absorption which helps connect you to the value chains which takes you helps you take to the frontier that is where we have I think messed up in that we have not encouraged foreign investment matter of fact foreign direct investment I'm now talking about matter of fact we've discouraged foreign direct investment until we get that and mind you you know this idea that okay uh the loopy can find its right level let it fluctuate I don't buy that at all at all so change find out this problem existed before December before February of this year so look at what were the problems before February of this year and then address policy accordingly and one of the things you will find in space is that we have messed up in terms terms of foreign direct investment. Last point I would like to make so much so that even the government admits and the finance minister last year in February made a public announcement in the budget as to that we are taking a reook at our policy on foreign direct investment. So it's the government recognizes it just like all of us recognize that the manu share of manufacturing to GDP has to go up from 13 to 15%. I've been hearing it from all political parties, from all economists that we need to raise this.

[00:26:53]It doesn't happen, hasn't it?

[00:26:55]>> That's a very important point you make and I want to get Hush Gupta to respond to it. The fact that you know there is an understanding that foreign investors at this moment are not very hot in the Indian economy and there's a need to address that is well understood by all policy makers we talk to. The likes of Surjit Bala argue that here is a crisis.

[00:27:12]use the crisis and opportunity and do something about it. So while we are hearing all the right noises, he's arguing that we aren't seeing enough action because you know money is money.

[00:27:22]You can't talk someone, you can't bully someone, you can't coers someone into investing. If he sees the value in coming in, he'll do so otherwise he'll bounce. It's as simple as that. You can't talk him into investing. So therefore, he's saying that we're talking or we're not doing. Respond to that. Hush.

[00:27:35]>> No.

[00:27:38]No. No. Rahul, you're right and I agree with Dr. Bala. He's talking about the bilateral investment treaties which Sita Raman ma'am had spoken about in budget that actually review and we are yet to see that process and of course that would further help in terms of we should have an open debate whether we want the forum to be international arbitration out of the Indian courts and Indian courts obviously have problems so on that point I agree with Dr. I would simply add a nuance that nonetheless the reality is we did see record gross FDI flows in FY26 and $95 billion. It's the repatriation that has been high and you know Sajji Chinoi has spoken about global interest rates. It's also the reality that Indian companies are becoming global multinationals. So it's not like technology absorption and FDI is not happening but I agree with Dr. Bala more can happen on the private capex point. Uh Rahul that you mentioned is another point I'd actually agree with Dr. Balai who had earlier written uh 2 or 3 months ago that Indian real interest rates is fact before the war.

[00:28:34]So right now it's temporarily perhaps not that much applicable but Indian real interest rates some of the highest in the world. For example the Vietnam 10y is around 4% 4 and a half% we are at 7%.

[00:28:45]So you are not going to get private capex if there is no demand uh aggregation and uh stimulus thereof if you don't see capacity utilization going from the mid70s to the high70s to the early 80s when you have first brownfield then greenfield capex so I think the government and the RBI were going towards in that direction the RBI cut 125 basis point and my numbers my research shows that actually capex did uh deliver a positive surprise last year except in the sector of telecom so it's not also the case that private tele private capex is not happening but it could happen much more right now we are in the range of around 10% of GDP in terms of private corporate capex at its peak in the 20078 it was around 17% although it was there only for a couple of sectors so there is clearly scope for Indian private sector to spend more uh for that we need more demand impulse on the macro side and I would also say we need to think more creatively about industrial policy so >> okay DV this because as you speak to members in government dealing with economic policy. They're constantly urging private companies to go out and war on balance. That hasn't happened and that creates a lot of distress within the finance ministry. You know, policym unhappy with that. But if you speak to industrialists, they largely say that this West Asia crisis creates uncertainty about what will happen in the future. And therefore, they're not saying they'll not invest ever, but they're in a wait and watch kind of mode. And you can't really blame them because you don't know how long this war goes on for, in what form and shape it ends, what the future looks like. That's not known. And therefore, what do you suggest be done to deal with the fact that you're now in this situation where you've got an uncertain period when the war gets over? You've got a government that is desperate for private investment across across all sectors along across all kind of groups to kick off and that's not really happening at this moment.

[00:30:36]So I mean we are bringing it all down to the West Asia war which is not even you know a few months old. Uh but this is a more structural thing than that. If you look at this is something I've been speaking about for the last 3 years that we our GDP has been running on a single engine of government spending. I mean that has been clear as daylight. In 2324 our private consumption went down to a 21-year low. uh our manufacturing the percentage of GDP in spite of the PLI scheme and all of that is at historic lows it is at levels which was last there in the 1960s.

[00:31:15]Uh so I mean some of the actually some of the um I think you know what we call reforms uh I don't think we monitor it against what the results are. So if you have a PLI scheme is it for investment is it for employment is it for getting technology so when we are giving chunky subsidies to you know some large company to at land at 20% of the market price and all that what are we getting in return and as far as the currency and investments into India is concerned also remember one fact that our interest rate differential that interest rates in India how much are they higher than interest rates in let us say US and Europe that is at a low several decades low. I mean we are talking of a differential of two 2 and 1/2% uh over let us say US rates whereas uh the norm used to be 5 5 1/2% and the highs were around 7% point. So obviously when you know your interest rates are only a bit higher than the US it becomes less attractive to invest here which also creates a pressure on the currency which I don't find people talking about explicitly. As far as private investment is concerned again so for example we gave this corporate tax cut 8 n years ago. Now who are the large corporate taxpayers? There are three categories.

[00:32:39]There's banks, there's PSUs, and there are MNC's which are mainly in consumer goods. None of those people are going to invest. None of those companies are going to invest because you gave them a tax cut because those are not the investing companies. So if you wanted money going into investment, you could have given more specific uh incentives for investments which have happened in direct taxes in the past. So I think little more focus on what is the you know what is the agenda what are we trying to what is the goal and whether that policy is moving you towards that goal. There is this interesting data point I want to show which is which compares government investment as a percentage of new projects versus private investment and if you see and that's the point that DNA was alluding to it's largely government capex that's pushing uh the Indian investment story forward and Ratin Roy try as we might we aren't getting a cross sector private investment surge what are your recommendations to government at this moment to try and ensure that that they can make it happen because they say or in their estimate they've been unlucky twice over once when corporate tax rates were reduced uh there was COVID then when the GST rate rationalization happened which could have also potentially seen consumption go up and therefore extra demand at that time the war started so here it is on your screen uh white reflects the blue reflects government uh the blue reflects private and the green reflects government so if you compare for example for quarter five quarter 4 of FI26 it's 47% of uh the private investment that's happening in new projects coming from the government uh government from the government and 53 from the private sector. So it's almost split in the last uh in the last uh quarter but actually it's largely just the private se it's largely just the government sector that's pushing private investment in private not to the extent that they should or they could pushing the Indian investment story forward. How can that be changed? Ratin Roy >> let me first point out that these figures if you look at the last quarter >> that is I think a more realistic estimate of what is happening >> sure >> you see the public sector companies come under private investment and what saw for a long time was that government on budget private investment was going up and capex in the public sector was going down so it's a bit overstated that that differential having said that what kept that up into I've been saying for a long time uh I don't I don't even know whether I should bother repeating it we are working this economy on the back of the top 150 million people. We are not working this economy where the majority of people work and make money. We are not working this economy on agriculture.

[00:35:13]We are importing clothing that you know reasonably well off people, not rich people wish to consume. We import that from Bangladesh and Vietnam. Our construction is for the very rich. Uh health and education expenditures which can be very gainful in terms of growth are not working. So we are not able to tap the domestic demand of the next 10 to 15% of the population. That in my view is the structural constraint. Now we then go into these uh loops. I'll give you an example. So apparently current account deficit is essential for a growing economy. Well tell me about China then or South Korea. So I'm not saying that you shouldn't run a current account deficit and have an appreciable growth rate. China is not the only way.

[00:35:53]But you can't both argue that we should be exportled and run a current account deficit and then on the back of a very fe feeble reserves base coming chiefly through the excess of FDI plus FII over your current account deficit uh argue that we are sanguin and safe as this crisis shows us. So we have to get a little more responsible. I also want to very quickly disagree about what Har said about it's not a matter of you see if you look at the amount of money that the RBI spent in by in in defending the rupee not now not under governor Malotra under the last governor was a great media manager for the last 18 months it was scandalous it also happened to be a time when Indian companies investing abroad but trying to unravel their foreign investment positions so we've had that history I'm not saying that that history is something that should affect us now I think the RBI has very effective they counted it. So for the government, I would say manage the economy prudently as you are doing now.

[00:36:48]Hold your nerve, use the reserves wisely and private investment will come if you're able to broadbase demand. Let's see some action in UP and Bihar in terms of investment. Let's see some action happening in the part in the majority of the economy which is poorer than Nepal and let's not just focus on the peninsula states. If we can get that action going, if we can see new areas of development and if the manufacturing growth rate goes up through that, I think we'd have broken the nexus which I have called earlier the million contract into which we keep repeatedly finding ourselves and to which crisis push us.

[00:37:20]>> This is an important point that Ratin Roy makes. In conclusion, Dr. Bala, he's basically saying hold your nerve, don't panic, use the crisis an opportunity to push more reform through and ride through this turbulence. There is turbulence not just for the Indian economy. There are global headwinds that are making economic navigation complicated for the governments the world over. Hold your nerve. Use the crisis and opportunity to try and make things better for your people in the future.

[00:37:46]>> One more point. In future please don't boast about the future. Stop boasting.

[00:37:50]Very important. Dr. Bala >> look I cannot disagree with that. So in other words, what Ratan is saying, we should institute reforms and that's what I was saying that we've been talking about economic reforms uh for manufacturing for production um and we've had negative reforms for FDI. So I have a very simple straightforward uh not a solution the long-term uh answer to our problems. One we go back to our FDI policy pre205.

[00:38:36]So therefore uh that worked for us has worked for every country in the world.

[00:38:42]Our policy pre205 was the same as every country was following. So that encourages and I guess my underlying message is individuals firms respond to economic incentives. So I don't believe in appealing to patriotism or morality or whatever else.

[00:39:06]There's nobody in the world that an economic we all economic agents. We all have red blood going through us. 7 and a half billion people have red blood. Red blood means we respond to incentives. So let's take morality out. Let's take patriotism out. Institute implement incentives. And we know what the incentives are. That's why I cry every day. Everybody knows. Everybody in the government knows. Everybody in the media knows. Every economist knows what are the right policies to follow. And that's why I said 10 minutes ago why doesn't it happen? That's >> was there then Madu Gupta a sense of complacy that India is such a big market 140 million consumers foreign money has to come in where else will it go and therefore whether it's long-term capital gains whether it's the security transactions tax uh whether it is the bilateral investment treaty you do you do things assuming or imagining that it won't lead to negative outflows from your country. Money is money. You can talk, you can rouse voters into voting for you. You can't rouse investors into investing in your country. That's the difference.

[00:40:20]>> Yeah, that's the message.

[00:40:22]>> Exactly.

[00:40:22]>> I agree on the point of in on the point of incentives. I >> I fully I fully >> I fully agree on the point of incentives that Dr. Bala mentioned. I don't think you can use suation beyond a point for people to invest large amounts of money in capex or R&D etc. So you need the right incentives for that. I would simply say that I don't think while I agree that the bilateral investment treaty review is required. I'm not sure that's the only variable that has led to I mean we can disagree on that. Uh as I said gross FDI is at record levels. I think on the broader point that was also mentioned by one of the panelists. I don't think the interest rate differential between India and the US is problematic because it is at record lows because the inflation difference is also at record lows. In fact, the last 3 4 years, inflation has been if anything lower in India than in the US and you can see that for example in the PPP conversion rates, it's hardly moved. So realized inflation difference between India and America has basically been zero over the last decade. So that actually calls for Indian real interest rates to be lower. That will in turn help with demand aggregation that Dr. Roy mentioned and uh this is a point that Dr. Bala has also mentioned earlier. So I'm notically sure that these are the reasons and I think from what I'm go and complete the argument hash you know I I'm saying from what all I'm that I'm seeing in terms of the semiconductor mission in terms of PLI 1.2 2.0 to ECMS in terms of all the measures I think the I don't detect complency but that may be a subjective call and the final point I would simply say is while taxes are important the reason FIS are not in India is more structural I gave the example of South Korea as well every single day FII buying plus DI buying plus new supply of IPO QIP has to be equal to zero so I I'm afraid even if we have a tax cut some people may be disappointed on that particular front two questions one this sense which is never stated but the government doesn't want voters to believe that foreigners are making money and running away with it and therefore some of the measures that have been introduced were done to prevent that from happening or at least ensure that they pay some tax it's not like you can come in and invest you have to pay some tax that obviously deterred a lot of investors the second I want to show our viewers this last visualization which is to do with um SIP money coming into the uh markets on a monthly basis is and while that continues to rise the question is if the markets continue to range remain rangebound DNA are you concerned at some point in time that these domestic investors who've largely and you can see the graph it keeps moving up largely been continuing to pour more and more money they start feeling hey you know the story that's been sold to us that mutual funds saying yeah money will keep our money will keep going up that's being questioned and could this then lead to foreign pressure and then domestic pressure as well where domestic the small retail investors no longer feel as confident and certain about the future. Dave Namera.

[00:43:22]>> Yeah. So I mean my message to the retail investors is that don't do this because uh equity markets are not predictable.

[00:43:29]I'll give you an example. 1994 to 2003 which incidentally was a time when a lot of FII money came in. In fact 94 is when FI money started coming in. In spite of that, that was one 9-year period in the equity market history where the net returns were zero. And then from 2003 to 2007, the market went up six times. So that is the nature of equity markets that you can get 5 years returns in one year and vice versa. So you know, you have to have in in hindsight everybody looks at the chart and say, "Oh, of course, I wouldn't have got out at the bottom and I wouldn't have gotten in at the top." But when you are living through it, it is painful. But that is the nature of equity markets. Uh as far as uh the uh FDI and FBI flows are concerned. FDI of course I mean a lot of it is happening because of net FDI which is money going out. Uh and uh even now when we are being told not to uh travel abroad or buy gold. The two largest uh groups in the country have promised to uh invest a lot in the US. But that apart on the FI front um I think one you know rather than on the capital uh the long-term short-term capital gains tax and all that I think one thing which I have a question which I have not been able to answer is why uh foreign institutional investors are allowed to speculate in the derivative markets in India because that is not just an outlaw of foreign exchange on the capital account that's actually losses is made by Indian and small Indian players uh you know the person on the street literally and that is getting uh taken out of India and there is no reason to yes it will decrease liquidity but but we don't want that much liquidity in derivatives so okay so hopefully the one low hanging >> policy mandrins are listening and watching I think we've had an interesting conversation we covered a lot of ground and the key message at least to me from what all our four experts is that there has to be a sense of urgency. These reforms these this crisis potentially provides an opportunity to push through reform which would be difficult otherwise or which you'd have to you know have some difficulty trying to explain but the crisis is the opportunity to push that through. So you can use that. Will the government do that? We'll track that very closely for the moment. Ratin Roy Sujit Bala Harupta DNA for lighting up the numbers game with your arguments and your insights.

[00:45:59]Thank you very much. I much appreciate uh you taking our time and joining us. I hope you enjoyed this conversation as well. We'll try and make sense of the numbers on the numbers game. So, it's not just random numbers floating in the air, but an attempt to try and make sense of how these impact you, our viewer, our voter, our consumer, who ultimately is having to bear the brunt of what's happening in the world around him. Thank you for tuning in. We'll have more for you when we come back on the other side of QuickBook.

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[00:49:11]>> He has said that. So when when when when this decision is going to be made uh how soon are we looking at a transition to another chief minister and did he speak about you know who the next chief minister could be that that he did not tell anything that he did not tell anything and about the transition also he did not discuss with us >> also sir uh you know you were not a part of this cabinet you've been a part of multiple cabinets in the past you are a ninetime MLA yourself are you hoping that this time around you'll be a part of a cabinet which is going to be in the runup to the next elections here in Karnataka sir >> it will depend upon the chief minister it will depend upon the I command you it will depend upon the chief minister. All those things are there. No.

[00:49:45]>> But are you hopeful sir to be a part of?

[00:49:47]>> No. See if you understand >> I'm the senior most person >> in the legislature.

[00:49:52]>> Yeah.

[00:49:52]>> In the history of Canada legislature.

[00:49:54]>> Yes.

[00:49:54]>> Nobody has returned nine times.

[00:49:57]>> But still to form a ministry it is a high command prerogative and the gym's prerogative. So they will decide about.

[00:50:04]>> So how was the mood of the you know chief minister Mr. Siddra is usually a person you know who exuberates confidence. But in a scenario like this when he's been asked to step down after 3 years, was there was there any sense of disappointment that you saw? How was it?

[00:50:15]>> I did not see any disappointment in his face.

[00:50:18]>> Okay.

[00:50:18]>> He was that normal.

[00:50:20]>> He was the situation in in the state of Hormos right now and Iran. The last 48 hours have been tense. Is there a sense that uh strikes are imminent?

[00:50:33]>> Iran can never have a nuclear weapon and so the issues of enrichment and the highlyenriched uranium have to be confronted. The straits cannot continue to be closed.

[00:50:40]>> The import of American oil is important for India particularly because of the situation. India wants to diversify energy. We want to diversify the countries we export to.

[00:50:51]>> There is also an issue of visas uh for for Indians. They have to come back to India for green cards. Now why has America taken this decision?

[00:50:59]>> Well, it's not about India. It's about the whole world. Anytime you reform a system, there's going to be some disruptions. There's going to be some hiccups. How did the meeting with the prime minister go? What did you discuss >> relationship between the president, President Trump and Prime Minister Modi?