Express Explained: BJP Winning Elections but Losing the Economy? Surjit Bhalla Decodes

Added: 2026-05-21

[00:00:00]So we can't say we are the fastest growing economy uh when there are economies like Bangladesh and I mentioned a few other economies. The BJP is doing extraordinarily well. You're winning elections. That's the uh presumably the primary goal of a political party is to win elections. So now you won every election that mattered. And so why rock the boat?

[00:00:31]>> Why is India not being seen as a business friendly country? Why are we only seeing outflow of investment?

[00:00:38]>> But our own business people don't think the Indian market is fantastic.

[00:00:45]>> It it is worn. We have the prime minister calling for austerity measures which are which are very reminiscent of CO and CO was a catastrophe. We haven't reached a trade deal with the US, our biggest trading partner. We haven't reached a trade deal. So, we have to give up on the notion that the foreigner is dying to come and invest in India.

[00:01:10]They're not.

[00:01:17]Sir is an economist. he served as the executive director for India at the IMF and uh I think 2017 to 18 Sujits also served in the economic advisory council to the prime minister's office. Um and uh the reason we are speaking with him today on video is because of uh something he wrote in our paper today.

[00:01:41]Uh most of you would have already seen it. Uh it is on the editorial page. the lead piece headlined BJP is winning the elections but losing the economy which uh is seeming to be making quite some waves uh at least online people have uh really commented on it there everybody's talking about it and sujit sir let's let's start with your uh first of all thank you for being here thank you for taking out your time but let's jump straight to it uh your thesis here is very interesting I'm going to read out a part of it slightly paraphrased which is that you're arguing that the BJP has exceeded it has reached its electoral peak after winning Bengal and it can exceed it in 2029 if Narendra Modi comes back to power. So at one on one hand it has reached its political peak but at the same time the handling of the economy has hit a low with no guarantee that it cannot go lower and therefore the burning question is are the two events coincidental or simultaneously determined.

[00:02:44]Why don't you reveal the answer uh for the viewers yourself and with with your with your analytics?

[00:02:49]>> Yeah. So this is the the puzzle right I mean that they're succeeding beyond all expectations including their own in winning elections.

[00:03:00]So there's absolute you know they the BJP now rules over larger part of India than any one party or one coalition has ever done in the past. So therefore there's massive amounts of political stability. Now political stability goes with you know reforms they they have a greater uh liberty to introduce reforms so they're not going to lose much etc. So why is it that the on the political side the BJP is doing extraordinarily well and on the economic side and we can go through but let's take it as given and I'll spell it out in the article that really on the economic side it is not doing so well. So that for me uh is a puzzle and I explain the puzzle by saying that it puts them into a fantastic comfort zone. That is why rock the boat. Okay, you you're winning elections. That's the uh presumably the primary goal of a political party is to win elections. Now you won every election that mattered. And so why rock the boat?

[00:04:20]That's the so that's the puzzle. Uh that they don't see a com they're very the point and then I go on to explain the point is that all the actors are in a massive state of comfort.

[00:04:37]So therefore you know everything is conspiring against anybody doing anything on the economy.

[00:04:46]So we will slow down maybe we'll slow down to 5 a 12% maybe 6% um and that's been our average for the last 35 years >> right sir and I think uh you really summarize what you said in this line which I think is the zinger of the piece this line in the I I'll read it out for those who haven't read the piece already in the last para the first line the deeper danger of overwhelming political success that it can encourage the belief that policy is already good enough. It is not. Um so sir just to zero in on this then uh and this is related to an article you wrote previously I remember for express where I think you said something on the lines of that one of the most important metrics to understand the performance of an economy. It may not even be GDP or inflation. It is uh investments uh and the confidence of people in looking at India as a country to do business with.

[00:05:44]Could you please explain this contradiction then that India being one of the world's f or being the world's fastest growing major economy for the past few years that is what we have heard how can that be on >> but that's incorrect >> oh but of the major economies >> that that's that's incorrect >> right >> it is true that in the G20 >> right >> which is mostly developed economies and developed economies grow at a slower than developing economies. There are about four or five developing economies of which India is one >> and China is the other.

[00:06:23]>> Um and we've grown faster than China. So that's it. But if you talk about um the rest of the world right >> beyond the G20 uh and I mentioned two in particular Bangladesh and Vietnam they are growing close to us or faster than us and in in with regard to the following metric which is you know the entire uh vixen pal uh is oriented around dollar income growth.

[00:07:04]Okay, what's your growth rate? Not GDP per capita but dollar income per capita.

[00:07:10]Dollar GDP per capita. And in that over the last 12 years, India is tw is 16th.

[00:07:21]Okay. And Bangladesh is number one.

[00:07:25]So we can't say we are the fastest growing economy uh when there are economies like Bangladesh and I mentioned a few other economies. So we not the fastest growing economy >> right so then thanks for that correction then I because we at least have been hearing one of the fastest growing major economies uh in the world. So but so if we hear that and keeping the caveat that you just gave in mind, why is India not being seen as a businessfriendly country? Why are we only seeing outflow of investment? And to push you just a little more on that, not just of foreign investors but also Indian investors.

[00:08:08]>> India, it seems like Indian investors are also uh preferring to invest abroad and not in their own country. So how is this a country of ho how can this be a fast growing country then? Could you explain that?

[00:08:21]>> Yeah.

[00:08:22]>> So look investment is always um the major departure point for investigating. Then there's total factor productivity and labor productivity etc. But what is a major determinant of invest of growth is investment and the government itself and all governments emphasize investment. Now investment there is there are two components to aggregate investment.

[00:08:56]One is domestic investment and the second is foreign investment. And within [clears throat] domestic investment you have private investment that is corporations and you have public investment that's the government.

[00:09:14][clears throat] Now since the BJP came into power [clears throat] excuse me the aggregate investment to GDP ratio has stayed constant at 32%. which is not bad at all but it is not sort of the high30s etc where it was momentarily for about 3 4 years under the congress government the UPA government 2004 to 2013 so we've done very well in investment now not as well as we wanted to but we've done well what has happened is that this 32% % as I said is composed of government investment and private investment and government investment that's infrastructure mostly has gone up by about five or six percentage points to GDP and private investment has gone down by five or six percentage points to GDP so therefore the aggregate is staying the same But second and related to this, everybody recognizes that private investment is a lot more productive. You need infrastructure, but infrastructure doesn't give you growth right away. So private investment is what gives you higher growth. And we haven't had because of the decline in private investment, we've had slower growth than what we expected. that was given. On top of all of that and the private investment is related to the following fact that we have in 2015 the government passed a bilateral investment treaty regulation.

[00:11:16]Okay, which regulates the behavior and the legal requirement for foreign investors as well as their domestic partners.

[00:11:29]Now that is where we the big stumbling block was. that is to say that these were very restrictive uh bilateral investment regulations such that what the foreigners said I'd much rather go to Vietnam or Bangladesh or somewhere else. Okay. So they stopped coming to India. So that investment went down.

[00:12:00]In addition because of the various what is called uh the business climate um that investors don't domestic investors don't feel very comfortable to take the risk of investing in India so they are investing abroad so therefore the net FDI which is the metric that I used to be 2 1/2 to 3% GDP. Now in the last few years and especially in the last year that has gone negative that means there are more investments domestic investments going abroad than foreign investments coming into India.

[00:12:53]That's the problem.

[00:12:54]>> Thank you for that detailed explanation on investments sir. I think uh the government and also people have a tendency to sometimes attribute the performance of the economy to external factors. And right now I think the Iran war has noticeably impacted every major economy in the world. But my question to you then is were there no problems in the Indian economy predating 28th February when US and Israel started the Iran war and the first week of March they closed the state of Hormuz but if it is a structural problem then surely it predates the American Israeli operation and if there are then what are these structural problems that are plaguing the Indian economy?

[00:13:40]the structural problems for the foreign investor.

[00:13:43]>> Yes.

[00:13:44]>> Or the structural problems for the domestic investor.

[00:13:47]>> For for both for particularly for investments. Yeah.

[00:13:50]>> You have to do the domestic investors and then I look first to domestic and then for foreign feel more or less comfortable investing in India.

[00:14:08]So it has to do and I think it's less comfortable because they are or you know uh a greater fear that the ED will come knocking on your door um election financing will be required.

[00:14:28]So this is all you know you can't get precise data on this but it's the atmosphere. So what economists like to do is look I don't know what the reasons are the bottom line is for the first time in history right Indians are finding we are claiming that the Indian market is fantastic but our own business people don't think the Indian market is fantastic so they'd much rather go to Vietnam I don't know wherever they're Okay. But they're not investing here. So they feel uncovered. As far as a foreign investor is concerned, we put in deep regulations on them in terms of what they can do and what they cannot do. So they don't want to come in. So the two together means that private investment in India has gone down and we need to change you know as uh James Carville or you know remember that line is the economy stupid? So this is a version of is the investment climate stupid >> right sir. Thanks and I think just final question before we sign off uh this interview uh if you were again inducted to the EAC today hypothetically what would be some of the immediate things that you would change overnight uh to fix this investment situation because uh it it is running. We have the prime minister calling for austerity measures which are which are very reminiscent of COVID and COVID was a catastrophe and uh it is not uh you know an overreaction for people to start getting worried when their prime minister tells them to take these measures. So if you had to give uh some sharp points to to the government today uh for the for the turbulent >> I think the solution is not that far away but I think it's an important question what should the government do is what you're asking and I think the easiest thing for the government to do is to go into whatever the rules were before they got changed in 2015.

[00:16:59]Okay, which is what the practice in the west are very open etc. The foreign investor has a lot of rights as well as the domestic investor. So I would try and go back to that because this certainly is not serving us any well. So we have to give up on the notion that the foreigner is dying to come and invest in India. They're not. Okay. As I point out in the article, the GDP of India is the same or less than the GDP of California.

[00:17:39]So that's number one. Number two is that we need to encourage investors to come to India rather than the opposite rather than discourage.

[00:17:54]And fourth, you know, the rule of law and everything else, [snorts] I mean, we need to be a much more open. For example, tariffs in India uh are still very high. For example, we haven't reached a trade deal with the US, our biggest trading partner. We haven't reached a trade deal. So, you know, there are many things that could swing the balance uh away from the situation that we are in today. Thank you for the last thing I want to point out that the West Asian crisis we started in February has nothing to do with the predicament we are in.

[00:18:40]All of these were present in spades before February of this year.

[00:18:48]I think that last statement itself is a long article waiting to be written and dying to be read by our viewers.

[00:18:55]um because we to dispel the notion that our our problems are all based on what has been going on since February. But uh that is for another day. Uh thank you so so much uh Sujit sir