Bibek Deboy :

There has definitely been an impact. India is not as open as China, so it does not have as much exposure in exports to the external markets. The exports to GDP ratio (that includes figures for both goods and services) is about 21 percent. The economic slowdown has brought down the growth rate from about 8.5-9 percent to about 6 percent. That said, it's true that India has been let off lightly.

Bibek Deboy :

One reason why India got off relatively easily is because of the indigenous sources of growth like agriculture. Hike in procurement prices, farmers' debt relief, and to some extent, the NREGS (National Rural Employment Guarantee Scheme) have kept the rural sector going. But these are not part of the fundamental structural reforms in the Indian agricultural and rural sector that should have been implemented. So, it's a wake up call for the Indian government, rather than the corporate sector, to introduce structural reforms..

Bibek Deboy :

The export sector such as garments, gems and jewelry, handicrafts, and leather and leather products have been some of the worst hit sectors. Other export items like chemicals and pharmaceuticals haven't been severely impacted.  Apart from exports, real estate, software and IT related services, tourism and civil aviation have been battered by the slowdown. That said, I think the real estate sector was due for a correction in any case and it is also not wise to generalize because what is happening in the metros is not happening in the smaller towns.

Bibek Deboy :

Our exports have already diversified from North America. If we exclude exports and imports of crude, our largest trading partner today is China. So, we are looking at East Asia and China as export destinations. Having said that, many Chinese exports also go to the US, simply because the world is interdependent. That's why if the US economy suffers, China's exports also suffer and therefore imports to India are also affected. So, one should not drive that point too hard.

I think it will take at least two to three years for global exports to recover. It will be a gradual recovery, in fact, now export orders are slowly beginning to revive and there's no credit crunch anymore.

Exports essentially depend on one: demand; two: supply side problems like infrastructure, ports, road transport; three: the export incentive system and four: the exchange rate. For instance, if the economy does well then ideally the rupee should appreciate, so the question before the RBI is to what extent will it control and cushion the appreciation? Because any appreciation will hurt export, the real question now is how can one run counter to market forces especially when capital forces have begun to revive? There is only one answer: reforms.

Bibek Deboy :

One needs to be careful with statements about the software industry because there is a lot of disparity between the top 10 software companies and the rest. The recovery impacts them differently. So, if you are talking about the top 10 or 20 companies, I think you can already see the signs of recovery. But that doesn't hold true for the smaller ones.

Bibek Deboy :

For foreign investment in terms of FDI, September 2008 is not the right benchmark to use. Also, there have always been classical problems related to FDI in India including infrastructure, roads, electricity and literacy among others. So, FDI in India vary from state to state and sector to sector. For example, we might have an open market in manufacturing, but in services we have equity caps and we continue to debate whether we should allow FDI in retail or not.

Before September 2008, FDI was beginning to come in fairly substantial amounts largely because of traction in the consumer market. Now, I think you can already see FDI coming to India.

Bibek Deboy :

Like I said, the Indian government has not implemented structural reforms. But government policies are either talking about monetary policy or fiscal policy. I really can't criticize the RBI on what it has done in loosening the monetary policy. My worry is that the RBI may decide to tighten the monetary policy because of inflation and I think it would be a big mistake because the recovery is not robust enough yet.

Now you might say that because of the financial crisis the government introduced fiscal measures that arrested the drop but that is not true. Public expenditure rose even before the economic crisis happened and all the public expenditure programs including the fifth pay commission, farmer's debt relief and NREGS happened before September 2008. The fiscal packages from December 2008 to February 2009 added very little to public expenditure. I think it was pure coincidence that public expenditure increased and that the fiscal packages provided some kind of cushion.

Bibek Deboy :

As far as the fiscal reforms are concerned, if there is going to be a rise in public expenditure, then we should ensure efficiency of public expenditure. This has not been achieved despite RTI and third-party audits and not enough has been done about administrative reforms and decentralization. There is another proposal to de-link public debt management from the RBI's other operations, and this is important because it will create upward pressure on the interest rates. But the final step to fiscal policy reform is the tax reform agenda both on direct and indirect taxes. This essentially means that they should be standardized and rationalized; also tax exemption should be removed.

Bibek Deboy :

We are not going to go back to 8.5-9 percent GDP. If we have a big bang reform in agriculture and the infrastructure sector, then we will get to 8.5 percent even without the global economy recovering but that is not very likely. I would say the growth would be between six and seven percent in the next two to three years.

Bibek Deboy :

The availability of credit is still a problem for small scale enterprises.Indian large scale manufacturing was hit in the second half of the 90s, but between 1995-96 it became much more globally competitive. Now, because of the global economic crisis, we have become more competitive and are investing in technology, getting rid of surplus manpower, and are getting access to marketing networks and are also entering into joint ventures and tie ups. I think all these steps should now be incorporated into the small scale sector.

Bibek Deboy :

I don't like either of these questions because I don't understand what the expression "inclusive growth" means. I am very uncomfortable with the term inclusive growth because when people say inclusive growth they mean SC, ST and other minorities, but that's not the issue. We need to look at the larger picture. When I go to states in India that have been growing rapidly, I don't know where rural ends and urban begins.

What I do think is that there are parts of the country which have not benefited from the growth and reforms. So, inclusive growth means addressing these geographical regions in central India like Madhya Pradesh, Chattisgarh, eastern parts of UP, Bihar, Orissa, and some backward areas in Andhra Pradesh, Maharashtra and Karnataka. In most of these places, both physical infrastructure and law and order are non-existent. Also social infrastructure like schools and primary health centers are few and far between.