It Is An Affordability And Livelihoods Crisis: Dr. Arvind Subramanian On India's Economy

Hinzugefügt: 2026-05-15

[00:00:00]Let's move on to our next guest here on the big economy round table. I'm joined by Dr. Arvind Subramanyam, leading economist, former chief economic adviser and co-author of a sixth of humanity independent India's development odyssey.

[00:00:13]Good to see you Dr. Subramanyam. Uh there are lots of optimists like Dr. Ashoki who are saying look this is a temporary supply shock. The economy is still strong and resilient. Do you share that optimism or do you believe that a deeper crisis could be looming?

[00:00:32]>> Well, um uh first of all, I think uh these are actually u a shock and a challenge uh uh and let me kind of put it that way. It's a shock uh in the short run to affordability and livelihoods because of the energy crisis. Now whether it's shortterm or long run will depend a lot on how long this squeeze lasts, how long you know the war uh lasts and the straight of hormones remains closed. Even if it reopens quickly, it will be longer than people think because uh supply cannot come onto the market very easily. Uh so so that's so so so Rajn I want to emphasize very strongly that in India the narrative is that it's a foreign exchange crisis you know that we need to bring back capital. It is I think that's a slight misdiagnosis.

[00:01:33]This is not a foreign exchange crisis because we have, you know, $700 billion worth of reserves. It's not that we can't buy stuff. It is an affordability and a livelihoods crisis because prices have to go up and livelihoods are going to be affected. Uh, and that's the way we should think about it. And the second is that it is not just a crisis about energy. There is also a medium-term challenge that's reflected in what's going on with the basic Indian development and growth model. Is it delivering uh jobs? Is it delivering growth? Is it sustainable? Uh that also is something that I think the current crisis is highlighting.

[00:02:20]It's interesting. So you're saying don't just look at it as a foreign exchange crisis as many are. You're saying this is fundamentally linked to certain possibly structural problems of jobs, livelihoods which could get accentuated if we get into an inflationary spiral going ahead. Am I correct?

[00:02:38]>> Well, I think distinguish the two in the short run. I think there's a clear, you know, uh affordability, prices, livelihoods challenge, right? It's not yet a crisis. And the task here uh uh uh Rajep is look this is a crisis that's affected all countries around the world.

[00:02:58]The challenge is how is the burden of this crisis shared fairly and equitably across sections of society. I think that's the policy and governance challenge. Not you know how should we bring back uh money from abroad or raise interest rates attract capital. How do we you know aortion the burden of what this crisis has inflicted on all countries and on all sections within India? That's the governance challenge in the short run because so far the government's response you've heard the prime minister this week uh virtually suggest cut down on consumption, save more, don't buy gold, cut down on foreign travel. you seem to suggest that it must go well beyond that that is not really the solution to what is the jobs and livelihood crisis as you're calling it.

[00:03:55]>> Yeah. See, I think in in the short term, uh, you know, exhortation to private austerity is is a good starting point, but it's not a substitute for, you know, uh, the real burden sharing that has to happen because remember Rajep, I think this excessive focus on the rupee and the kind of somewhat I mean slightly false prestige associated uh has distracted from you know what needs to be done. Some prices have to go up. uh the burden has to be limited on the poorer sections of society and to some extent the exchange rate has to go down, prices have to go up because that's part of the adjustment. So just to give you one example, the prime minister has rightly said say let's reduce foreign travel. Well, if the exchange rate goes down, foreign travel is going to become more expensive. It is going to be more expensive for the middle class to send their kids abroad for education. that is necessary and desirable. What is problematic is of course you know the prices of uh energy which are used by poor people and farmers you know fertilizers uh uh uh petroleum gas and there I think we need to find a way of we cannot avoid price increases. We've seen the first round today. I think many more will have to come but how do we do it in a way that protects the poorest?

[00:05:19]That's the challenge in the short run.

[00:05:21]Now the development challenge is something quite different uh Rajep because I think people focus on the rupee decline in the last few months.

[00:05:31]The rupee declined a lot and amongst the most in the year preceding the war. So the question is why did that happen? If if you know if we were such a great place to invest in and supposedly growing at 7 and a half 8% why are people not investing? I mean it's a bit of a it's very bizarre to say that we're growing at 7 and a half% and yet capital is fleeing the country FDI is not coming in above all private investment is so still remains weak so that's the broader development challenge that the obsessive focus on the rupee etc should not obscure in fact foreign investors pulled over $20 billion from Indian equities in the first four months of 2026 FI outflows FDI has slowed down. I want solutions.

[00:06:23]I'm asking all my guests today solutions. What are the three solutions you would give Dr. Subramanya? Where would you start?

[00:06:29]>> You know first firstly for the short run I I I do think we have to find a way of you know raising prices of essential of of of some of the energy prices gradually. Uh I think we have to do that. Um uh but again how do we find ways you know of limiting the impact on the poor? I I think Rajep we have to get much more serious about the renewable energy transition. I I I think we keep talking about energy dependence you know uh we have such a golden opportunity with with you know solar and wind coming in. We need to see a whole lot of reforms of the power sector to really make that happen. And then I think on the private investment we really need to understand Rajep we say you know macro stability uh growth etc and yet private investment you know uh is not picking up. So I think we need to get to the heart of why is private investment not picking up? Why are we not competitive internationally on exports? And that has to be the focus you know like uh you know like mission mode focus on uh reviving private investment.

[00:07:47]How do you revive it? How do you revive it? There's no magic bullet. Surely you're saying this is actually a challenge and an opportunity in a way to revive private investment.

[00:07:55]>> Yeah, it's it's an opportunity. Exactly.

[00:07:57]See uh Raji those who sort of say there's some magic wand you can you know wield uh to attract private investment you know it has to do with doing firstly it has a lot to do in terms of what not to do Razi you mustn't weaponize the state apparatus to go after you know various people including investors right you mustn't favor only some groups over you know others more broadly uh you must be able to take everyone along in decision making. So I I think there's a lot of don't do as much as the dos that you need to attract private investment and you know we should take a leaf out of those states that have managed to attract private investment. You know the the southern states have attracted a lot of investment from China. Let's see what they are doing right and maybe you know Uttar Pradesh, Bihar, Madhya Pradesh uh because there are lessons for state governments as much as for central government in terms of what to do to private attract private investment.

[00:09:05]>> Do you believe it will get much worse before it gets better given that there is so much of uncertainty over when and how the war will end in the Gulf?

[00:09:13]Uh Rajep I think we have to be at least prepared for things getting much worse before they get better partly because of the war itself but also about one is anxious about agriculture as well. You know temperatures are very high. They say the El Nino might have an effect at least for the winter season. So I think certainly we should be prepared for things getting worse before they get better.

[00:09:41]>> I'm going to leave it there. Uh Dr. Subman always a pleasure talking to you.

[00:09:45]Thank you very much for joining me here on our round table. Thank you. Bye.