"Indian Economy Most Vulnerable In The World": Subhash Garg | MKV's 360 Degrees

Ajouté : 2026-05-23

[00:00:00]What is happening with the Indian economy?

[00:00:22]We are seeing what is happening with with inflation, with energy shortages, with with fertilizer shortages, everything uh feeding essentially into LPG shortages, everything feeding into uh a kind of hyperinflationary potential situation. reduce edible oil imports or don't travel abroad or don't buy gold.

[00:00:46]None of them are going to work. You don't do it in a day. It's not possible.

[00:00:52]>> Uh it is true that India is among the most vulnerable Asian economies. Hugely dependent on oil imports 80 85 to 88%.

[00:01:01]>> There are three ways in which the growth can be measured. Real economy growth, the nominal economy growth and dollar growth. The dollar growth is what is comparable across the world in that we are actually in the negative with 10% depreciation of rupee. So growth is very very poor and we were the worst performing currency last year. At this moment also we are worst performing country in terms of rupee.

[00:01:26]>> What will happen in the next 2 months if things don't get resolved?

[00:01:30]>> So a state of harmon situation is not going to resolve very soon. The way things look look like it's already more than 2 and 1/2 months. We running into the third month and um the way things are panning out it may continue for long. If you are in the still in the government, you are financing a two three things that they should do to to mitigate the panic response that that the government is offering today.

[00:01:58]>> The the trouble is that we start digging the well when we we have a problem or when there is a house on fire.

[00:02:07]>> India was already vulnerable even before the US Iran war.

[00:02:28]Hello and welcome to this uh special uh conversation on what is happening with the Indian economy.

[00:02:37]The Iran US conflict is showing no signs of quick resolution and u we are seeing what is happening with with inflation with energy shortages with uh with fertilizer shortages u everything uh feeding essentially into LPG shortages everything feeding into uh a kind of hyperinflationary potential situation.

[00:03:05]Uh the prime minister himself uh from foreign soil had warned recently that u the kind of crisis uh that uh world economies are facing uh especially the the developing economies uh would face uh could could bring a lot of uh societies back to uh you know poverty uh back to a situation of vast uh populations falling back to uh falling below the poverty line. uh as far as India's economy is concerned uh it is true that India is among the most vulnerable Asian economies hugely dependent on oil imports 80 85 to 88% uh that is not in that is not denied by anybody it's a consensus that India is among the most vulnerable but India was already vulnerable even before the US Iran war as um aptly captured in the economic survey of just before the budget a few months ago where the government admitted that the rupee was punching way below its weight.

[00:04:20]Uh government raised serious concerns over why foreign investment was shying away from India. Now we we this is the second or third year when we've had very very uh low next to zero for foreign direct investments. Foreign institutional investments which are essentially portfolio investments which come into the stock stock market are also hugely negative. Uh India has already seen over $21 billion of outflow this year. Uh the rupee is rapidly uh value is eroding.

[00:04:55]Some say it'll be 100 very soon and a lot of concerns around the economy. So today we decided uh that we would have someone who who's had hands-on experience with uh with policym in the finance ministry until 2019 when he retired. U Mr. Subash G former finance secretary is with us. Uh uh thank you uh Mr. G for joining us. Uh >> thank you.

[00:05:28]>> And Subash G should needs no introduction. He is former finance secretary, author of two very very wellressearched books that he has written both concerning the economy and policym u uh and the the latest one being no minister where he has talked about the inner workings of the government and no one better than Subash to explain to us what exactly is going on. recently Subash tweeted uh that the economy Indian economy is falling apart. Uh everything is going wrong.

[00:06:06]India is is at a big risk. Uh falling rupee energy LPG shortages. Uh he even spoke of uh uh growth uh numbers or or the GDP stock which which appears to be uh exaggerated. Uh so so uh Mr. so just tell us I mean how how do you see u the present dire situation uh economic situation uh panning out? We we've had Surjit Bala an economic adviser of this government who was during your tenure I think uh when you were still uh finance secretary he went to the IMF as executive director and and IMF's one of IMF's job is to keep a close watch on on the external sector uh situation for various countries and he's saying Sujit Bala is saying in his write up published two days ago in Indian express that India is probably can be counted amongst uh the most fragile economies today along with Turkey maybe fragile too uh and I remember in 2013 India was among uh when there was a similar sort of crisis when the rupee was depreciating uh rapidly 20% over 3 months u we were counted among the fragile five and now we are as per Surjit's own assessment fragile one how do you see all this uh Uh Mr. G can you just lay out your uh thought on thoughts on the state of the economy state of the currency.

[00:07:45]So thank you Venu. I think Sudjit Wala's peace in Indian express uh is uh reflective of the desperate situation Indian economy is. He uh had defended for many years now the government. He was India's econ executive director in the IMA for about three years. So um saying good things about the the Indian economy and the government performance. To my mind what he has written now reflects the actual situation on the ground. I I think the situation is still worse than what he what he has depicted. Uh look at the growth situation. So he has given out the numbers that don't fall for this narrative of India being the fastest economy in the world, fastest major economy in the world. He has given out that in terms of growth we are ninth in terms of per capita growth we are 16. So all those numbers are coming apart coming to make that the growth situation itself and remember this is the situation until last year uh and the things have deterated much more uh since then. I have been um comparing the growth uh there are three ways in which the growth can be measured. Real economy growth, the nominal economy growth and the dollar growth. The dollar growth is what is comparable across the world. In that we are actually in the negative with 10% depreciation of rupee and nominal growth of less than 10% we are actually negatively growing. So growth is very very poor and this year >> you're saying that dollar growth GDP growth is negative at the moment. Right.

[00:09:40]>> Exactly. So if you compare internationally in a currency which is common to all rather than the fictional der derived real economy growth in India when you don't know what the real inflation is any derived real economy growth is is sus suspect so comparable dollar growth in current US dollars is actually negative we are one of the worst performing country in the So that is where um the growth situation is. Rupee I think everyone knows now we were the worst performing currency last year at this moment also we are worst performing country in terms of rupee. Um so um rupee uh everyone is affected by the Iran US Israel conflict and the blockade in the state of Hermus. But look at everyone else. The stock markets in the rest of the world other than India are not falling. In fact, still there are many most stock markets are rising. Even currency dollar is at a pressure and most currencies in the world are actually appreciating against dollar and in that situation we are depreciating and depreciating very badly. Now that is so you look at growth you look at the rupee energy situation is so terrible at this moment that very soon we may have a situation where you have to ration rationing is in in some sort is beginning fertilizer shortages you you are going to face in in in the karif season. So all situ everywhere you look at the the conclusion is inescapable that the the Indian economy is falling apart.

[00:11:36]>> Yeah.

[00:11:38]So uh so Subash tell me u what do you this is just the beginning uh in the sense a lot of experts u both economists and other experts u they are saying that that the that that the actual u supply shock energy shortage is still not fully reflecting in the in the price of crude.

[00:12:07]crude uh crude is still at about 107 or whatever 110 dollars a barrel but but a lot of people say that that uh um that that this number does not reflect the actual shortage on the ground. These are based on basically future prices and uh and the future market is somewhat trying to be trying to be optimistic. uh but and many experts say that the actual uh energy uh crude price uh could go up to 160 $170 a barrel. Uh now uh are you what is your sense uh what will happen the next 2 months u if things don't get resolved u will there be a a precipitate uh increase in inflation etc and shortages uh rationing and all kinds of curbs or or do you think uh it will be incremental what is your sense So um the current shortage is more of shortterm. You see if you look at a little bit of a long term the energy demand for the world has peaked now and is likely to decline in times to come whereas supply side except for the shocks which is there uh is is is not short of the demand. So the long-term trajectory of crude should be more benign. But you have a problem which is specific to India and you have a problem globally which is short-term supply kind of shock thanks to the state of Hermos. So state of Hermos situation is not going to resolve very soon. The way things look look like it's already more than two and a half months. We running into the third month and um the way things are panning out. It may continue for long and we already have very uh serious damage to the gas infrastructure as well as oil infrastructure in the Gulf. So that's >> that that will take time to recover.

[00:14:20]Yeah. Yeah.

[00:14:21]>> So that that situation will persist. So supply side shortages currently estimated about 12 million barrels a day about 12% of the global consumption of 100 million barrels a day and that will persist and gas is still worse for for India. So when you translate the supply shock to Indian situation, we have a very bad uh we don't allow the oil prices and the gas prices to to be transferred to the consumers and that creates enormous amount of fiscal strain for the government in the OMC's as well as on the tax side.

[00:15:04]>> The government wouldn't be able to hold it for longer. They have decided on the strategy of incremental increases. these will go uh if you don't do it, don't pass on the um so so one of the arguments which most of the economists make these days is that the rupee should be allowed to fall to its true level.

[00:15:27]Now what is true level? If you if you don't allow the prices to pass on to the consumers, the real value of rupee will never be reflected. And therefore for India, we have literally wasted mismanaged our energy economy. In last year when Mr. Modi joined we have 70% dependence on the oil and the world was switching over to the to the renewables especially solar and wind. We uh we today have reached to 88% dependence because our domestic production is also falling and our diversion or transition to renewables is not happening. Our renewable electric vehicles at 2% of the domestic sale is one of the lowest in the world today.

[00:16:22]The countries where 90% 60% 70% transition is happening. So we have not transitioned away from the oil. Coal is a we we have coal but we have a bad quality of coal and coal is very ugly environmentally very unsound and you can't and it's it's today costlier than the renewables. So mismanagement of energy economy has led to this situation and which is not going going to go away even if this trade of harm gets cleared for India.

[00:16:56]So so so I'll come to uh some other macroeconomic u u strategies being being adopted by the government which in my view u are very on very shaky ground. For instance, the prime minister uh suddenly announced um urging people to cut down their edible oil consumption, urging farmers to shift to natural farming, urging people not to travel uh abroad uh um and not to buy gold etc etc. Um and today the commerce minister Push Goyel has uh said that they are coming up with a comprehensive strategy on how to reduce outflow of uh of dollars uh maybe even even discourage companies which are investing abroad. Um so so Mr. you are you are part of policym do you think such uh such band-aid measures will work? Um I personally think that the a a person of a a person of prime minister stature u saying that giving the signal to the world market that India has a dollar problem and that people should not travel abroad. What do they spend? I think the last figure is $16 billion is what Indians can travel abroad. So, so it it clearly it sends a a very negative signal to the rest of the world that that that a large economy like India is uh is uh is so underconfident uh that it can't even manage an outflow of $16 billion by people who are traveling abroad and you know asking farmers to shift to as far as possible to natural farming. So all these things um what sort of signal are they sending and and what will be the impact do you think that the impact the world market will think that there is that the prime minister is expressing India's vulnerability on on various levels and they there could be a renewed attack on the rupee is is is that is that the could that be the consequence of uh such signaling >> so there are two I think reasons why prime minister made the appeal number one I think he was he's realizing now there is a problem uh of the rupee exchange value as well as the reserves not being very usable or the disc inclination of the government and the reserve bank of India to use the reserves in the difficult situation in which we are so do everything which will put less pressure on the reserves which will allow the the demand supply sort of gap between the dollar demand the supply to be sort of bridged in some way and that is one. So the and but that uh reduce edible oil imports or don't travel abroad or don't buy gold none of them are going to work they are not or switch to the to the organic farming and the natural farming you don't do it in a day it's not possible the natural farming scheme the government is running for dunkey's number of years it is still not shifted 1% % of the agricultural production to the to the >> Yeah. Yeah. I remember you when you were there so many budgets made so many provisions for natural farming. It never never worked actually. You're right.

[00:20:34]>> None of these measures actually are going to make any impact as far as the foreign exchange situation is concerned.

[00:20:41]That is which brings me to the uh the second message which he was trying to say. You if you analyze all these measures these are largely barring some farmers etc which are more of the optics reasons these are basically directed against the middle middle class. So uh middle class travels abroad middle class buys gold middle class does most of these uh kind of things uh edible oil etc. That's a more consumer but imports we are short short on the edible oil. So, so middle class has been a protected constituency of this government. They have tried to please the middle class by doing everything.

[00:21:26]You remember the tax concessions, one lakh rupees per month income being exempted, then that GST uh kind of reduction. All these were because middle class is vocal and middle class occupies the space in social media and elsewhere.

[00:21:46]So this government has been attempting to sort of keep the middle class vocal middle class on its side. But now it seems to have come to the end of its ability to do more for the middle class.

[00:22:01]the so in my judgment prime minister was perhaps trying to sort of prepare the middle class for the difficult times ahead and that is why he talked about these kind of things. It was a preparatory thing that you can't avoid the price increases for long middle class be aware of that and therefore I'm making appeal which I think he knew that this go appeal is going to make no difference and therefore I'll come to the next stage of raising the prices. So I think that was the signaling which as far as the rest of the world is concerned. But I think rest of the world the interaction with India is reflected in the FBI's buying Indian stocks, FDI coming into the country. All of them have started writing off or becoming sort of lukewarm about India.

[00:22:53]>> Why why yeah I want to ask you why why do you think this is happening? Why is why is Subash have you seen this kind of risk aversion uh for foreign investors not investing in India? I mean why why do you think foreign ministers are shying away like the economic survey itself said what what is the reason in your view >> economic survey by the way was but I can understand the chief economic advisor's limitations he can't criticize the government he >> but he did he he did criticize he said foreign investment is shy >> explaining that that that he tries to smuggled in something sensible in the previous survey he said do business with China technologically China is the this one this time he said that rupee is is is punching below whereas actually the rupee was more due for the for the depreciation still he tried to say that handle the rupee so he makes some limited sort of advice within this space but all of them the important thing is that all of them are rejected out of hand immediately What is your view? Why is investment not coming to India?

[00:24:08]>> So why it is happening? Why it is happening is that look at FDI for for example first. So FDI comes into a country where it thinks that there is a business opportunity. There is an opportunity of making profits. There is a new technological investments happening in the world today. There are three major areas where the investment is flowing. uh one is the uh energy transition. So whether it is solar, wind or the electric vehicles etc. So that is where the investment is flowing. The second thing is the digital transition which is semiconductor chips, computers and and the third one is AI related agentic manufacturing. Yeah.

[00:24:56]>> So in all the three in all the three areas India is literally zero.

[00:25:03]>> Okay.

[00:25:04]>> So when you don't have investment opportunity here, you don't have technological leadership in any of these three areas. Why would any foreign investors would come here? Why are the foreign investors or everybody else still investing in America as far as the AI related manufacturing is concerned or AI related s softwares and the programming is concerned? Why is everyone still investing in China in the energy transition and the computerization? Why is everyone still going to Taiwan or Vietnam? That is where the opportunity is. So believe me the Indian economy today has a big problem of only having the old mature supply access industry steel cement and others and there are no great investment opportunities. So that is the reason why FDI is not coming. Now for the FBIs FBI is a simple merchants they they if they look at the stock market yeah they look at companies. Yeah. Yeah. And for last 20 21 months you saying Indian markets are actually giving a dollar negative return and on top of that if you factor in the dollar depreciation their returns become still more negative. So if your if your stock markets have lost 10% over last 20 21 months and your rupee has lost 15% you are actually sitting on 25% uh downturn minus the dividend etc. So 15 to 20% is the negative returns so fi is not in charitable businesses they will walk out. So look at everything look look at the one more side lot of for foreign capital or the flows were coming with Indians borrowing abroad because they thought that the rupee exchange rate is stable and therefore they can sort of raise cheaper money abroad even that doesn't exist so their repayment costs are going up so every which way you look at it now in fact the difficult more difficult things are are going to come the remittances we should watch out the remittances have held out still if the government takes measures like what you've just hinted Push go like putting restrictions on LRS or disallowing the the FDI abroad the international investors as well as the Indian diaspora out >> will hold their dollars outside yeah >> right so this is a kind of panic reaction. The government >> earlier was trying to sort of smooth sail the middle class and now it seems to be shifting to the panic mode. If it shifts, we have tougher days ahead.

[00:28:04]>> So uh so you rightly uh pointed out uh that there is a panic reaction. I I I completely agree with you that there's a panic reaction uh because uh the more you start curbing outflows uh the more foreign investors will get u apprehensive that if they bring the money in they would also be subjected to uh they could be subjected to some outflow restrictions. So I think that that psychology also operates uh according to you >> of course it operates uh it's essentially the first thing foreign investors look at is is there a profitable opportunity >> can I make profit >> then I then I can repatriate my profits >> then I see so in FDI if you look at it the fresh inflow is still coming at about 70 $80 billion but what is happening more is that the repatriation >> is now about $50 billion those which which had been ex invested earlier. So instead of new flows coming more aggressively the existing investments are exiting.

[00:29:19]>> Yeah.

[00:29:19]>> Right. That is and you now see it in the startup space.

[00:29:24]>> But that's a that's a dangerous situation to be in. Right.

[00:29:26]>> Of course it is. And tell me yeah Mr. Gar where do you where do you see the rupee going from here? Because the perception of the Indian currency as you initially said uh is global perception about the performance of rupee is very poor. We were the worst performing in 2025. We are the worst among the worst performing in uh in in 2026 so far this year. And as you yourself said there are many currencies which are doing appreciating against the dollar but we are depreciating as a result we are as somebody pointed out we are even depreciating against uh indirectly through the dollar against currencies like Bangladesh, Pakistan etc. So uh so so as long as this weak perception of the rupee stays uh do you think that the foreign investors will hold back uh because they would wait for the rupee to stabilize at some level because they don't as you said they don't want to invest in and then the then see a uh further deprecation of rupee and and consequently the their their returns would suff suffer so they would wait for uh the the rupees value to stabilize. So where do you think the rupees value will stabilize uh in the coming months uh coming weeks and months? What is your sense?

[00:30:48]>> I think Venu that is where the situation is most delicate in my judgment >> and the government is getting very contrary advice and I think government is not really thinking uh strategically long term and in in a better they they're just trying to manage for short term. Look at um a very strange situation today. The top economist of the country across the aisle whether they are Modi BJP supporters or they against you include Arvind Pangaria Arvin Subramanyam Ragam Rajam Gita Gopinat anyone you you name all of them are offering one advice which which is strange to my mind. Let the rupee fight it own level.

[00:31:38]>> Correct. Let the rupee fall its own level. Now one question we should be asking is that what is the rupee's real level.

[00:31:46]>> How do you measure any of these economist are are they in a position to tell that what is the real level of rupee?

[00:31:54]>> Now that is where I think the policy makers get a very confused advice and signals. the policy maker should be more sort of pragmatist. Now there are there's only one measure which economist and the central bank uses to define what is the true level of of the rupee. It is called rear. Real >> the RBI has a has a 40 currency basket rear.

[00:32:24]>> Correct. So that way important thing is that that rear tells you that rupees value should be 90 today.

[00:32:32]>> About yeah 90 to 92. Yeah you're right.

[00:32:34]>> Today we are at 96 97.

[00:32:37]>> So so that means we we yeah we are highly undervalued.

[00:32:41]>> We are actually far below what is the real value of the rupee. And now on top of that these economists tell you that find it its own level don't worry about 100. So, so I I want to ask you something here just wait you know I so so so yeah in response to your earlier question the the short-term rupee dollar rate is determined by the short-term demand and supply situation >> not by the fundamental real value of rupee >> it's the capital flow capital outflow and inflow yeah >> in the current situation is that there is a dollar demand far in excess of dollar supply >> and that can only be provided and corrected by the reserve bank of India.

[00:33:31]If the Reserve Bank of India doesn't create the or remove the gap between the demand and supply rupee will artificially fall further >> 100 and it go beyond.

[00:33:46]>> So the advice is completely wrong that RBI you should sit in the sidelines and don't do anything. It's the RBI which can only handle. By the way, there is another another one which >> can I can I just ask one question related to what you just said. So economist ad let the rupee weaken to beyond 100 102 103. Now as per you yourself you said RBI's own 40 currency basket uh rupees should be around 90 to 92. Now, at what point should RBI start selling more dollars? Because there is a view that actual expendable dollars with RBI uh in the reserves are less than $500 billion because they have nominally they have 69 $690 billion but there's an SDR component and gold component and uh some forward commitments which cannot be used immediately. So, So do you think RBI can should keep aside say $100 billion $150 billion to defend the rupee at at some level at whatever 100 or 98 or wherever uh is is that a tricky decision? That's what I'm asking. Yeah, >> this is a mindset issue. Yeah, >> I have been writing um which you just pointed out that of 700 odd billion dollars of that 115 is gold which is not usable which is a useless foreign exchange asset as far as the foreign exchange element is concerned. You are sitting over 100 billion of forward swaps dollars which which in fact the RBI is committed to sale in future and to that extent that is that is not there.

[00:35:40]>> Yeah. The IMF reserve transposition SDR is relatively minor but let us take that there about 500 billion so usable reserves. Now 500 billions of usable reserves and there there are various estimates about the the gap between the demand and the supply of dollars. Some people place it at about $60 billion. Some people place it $80 billion. But it's certainly not more than hundred billion dollars taking for the year as a as a whole. So spending 500 out of 500 should be a very easy situation. It should not be a problem except that you have a psychological mindset of not spending the but you end up spending because there is a real demand which has to be met. And when you you you grudgingly or unwillingly let the uh the dollar flow to the uh to the market then the rupee depreciate faster.

[00:36:41]>> Yeah.

[00:36:42]>> See we have a very very I I would say sinister kind of situation. At this moment some of the economists and some of the people closer to the government have started suggesting what happened earlier that open FC and RB deposits >> allow the so at this point when the do when the when the reserve bank should be supplying dollars is actually thinking of buying more dollars and the kind of swaps which you run there is a there's an announcement of $5 billion swap which will take place any day Now that is where the RBI is actually buying dollar today.

[00:37:25]>> This is very weird in my judgment. Where do the people who buy who sell the dollar to RBI today and take it back after two or three years get the dollar from? They get the dollar from the market which raises the prices. So we have a very very wrong strategy in managing. I if as a policy maker if I were to be in the government advice just ignore these fellows of not using the RBI reserves and at this moment and this situation may last for 3 months Lamas may last for 6 months and use the reserve to stabilize the rupee rupee.

[00:38:05]>> Okay. So finally uh Subash one final question >> what what should be done can you if you are in the still in the government you are finance secretary but two three things that they should do to to to mitigate the panic response that that the government is offering today and to kind of calm the the sentiments what would you do >> see the trouble is that we start digging the well when we we have a problem or when there is a house on fire.

[00:38:43]>> Every every crisis situation requires two kind of measures. One is short-term uh alleviative relief kind of measures and the other one is to initiate the long-term measures which create which take care of the distortions in the economy. If you go back to 1991 when we faced a a bigger crisis there again lot of short-term measures were taken but more importantly many long-term measures were taken so short-term measures the government is taking I need not speak but if you can adjust the prices to reflect the because that is what can correct the the real consumption real demand for that that is that is one shortterm but more importantly ly we should initiate the long-term measures whether it's in the energy side I spoke about that let us do business with China to sort of make the energy transition happen let us do business with the the Americans to take the AI transition h to happen uh let us uh get onto the uh to get the government out of the business public sector disinvestment program is what is what is needed You need to take on agriculture. We have very big problem. We have been discussing this earlier.

[00:40:07]The the absorption the government managing so much of the price is still administered in the economy whether it's power whether it's fertilizer whether it's the input prices all of those distortions need to be sort of sorted out. uh let the reserve bank and the government uh rework its relationship.

[00:40:31]Let the uh the reserve bank no longer be the debt manager of the government which creates a problem. All that reserve bank is today doing is to ensure that the government's borrowing program gets completed at >> also Reserve Bank is giving uh nearly three lakh crores to the government as dividends.

[00:40:50]This is the weird but uh sort of pleasant consequence for the government.

[00:40:56]RBI balance sheet is in rupee. If rupee depreciates, RBI balance sheet rises, RBI profits rises.

[00:41:03]>> Nation suffers but RBI gets more profit and it is transferred to the government.

[00:41:09]So on one hand the government loses lot of things but on the other side and these are all paper profits. you you you can't create profit out of misery which the RBI does and the government receives it. That's a very uh bad uh sort of symptom of the Indian economy. So I'll I'll just end my sort of assessment of the economy.

[00:41:34]Surjit Bala called it frazzile too against frazzile five in 2013. In my judgment today, India is the most vulnerable country in the world. So it is from frazzile five 12 years back 13 years back Mr. Modi and his government has brought India to be the only vulnerable country in the world and that vulnerability cannot be set or cured by taking these short-time piative measures and not allowing the economy to reform.

[00:42:08]reform the economy if you want to get out of this vulnerability situation. So >> thank you very much uh uh Mr. Subash for talking to us. Uh you've always given us very uh uh a lot of your uh insights from from your institutional memory by being in the finance minister by being in in the finance ministry. Um thank you very much uh for talking to us. Potato chicken.