India's revival unlikely before 2022: Ruchir Sharma

The Indian economy is unlikely to achieve the same level of output that it had before the Covid-19 pandemic until possibly March-April 2022, according to global investor and bestselling author Ruchir Sharma. In an exclusive interview with Vinod Mahanta, Sharma said two years of output growth have been wiped out. He also talked about global economic recovery, why he has been critical of loose central bank policies, why the government’s Atmanirbhar Bharat Abhiyaan may not be an optimal growth strategy, and of course, the rules that successful nations follow. Edited excerpts: India’s economy shrank by a record 23.9% last quarter. Covid-19 cases are still rising, and unlocking hasn’t really spurred economic activity. How do you see recovery panning out?It’s very clear that the extent of the contraction is directly correlated to the extent of the lockdown. India had the most severe lockdown and that’s why we had the biggest contraction. The government has now adopted a very different approach — about learning to live with the crisis, and the economy is opening up. I do think economic activity will keep picking up, but the damage of the second quarter was so intense that it will take a long while to go. The Indian economy is unlikely to achieve the same level of output that it had before the pandemic until possibly March-April 2022. That’s two years wiped out of any economic growth. Assuming India trend growth rate is about 5%, we will be basically 10% below our trend growth rate in the middle of 2022. From that level, I do think things are recovering. This may look like a V-shaped recovery because the bottom was so depressed. But, level is what really matters to people. Before the economy begins to feel normal again, we could be all the way to 2022. Which are the countries that have been the most successful in dealing with Covid-19?Based on the research for my book “The 10 Rules of Successful Nations”, there are half a dozen countries that have come up well in a construct. The crisis has accelerated many of the trends that were in play before, like de-globalisation, digitisation, etc. The four key trends that people should look for in a post-pandemic world are countries with strong domestic markets, export prowess to deal with de-globalisation, role of government and strength of institutions, and government debt and deficits. The countries that have done well are Germany, some of the Nordic countries like Finland, Switzerland; and in Asia, Vietnam is clearly emerging as the next China. Then it’s the traditional gold medallists of growth in emerging markets — Taiwan and South Korea. They score high on digital sophistication and well-run governments. Russia is also a dark horse as (President Vladimir) Putin had been preparing for this kind of a world, a kind of fortress Russia. You have generally been a critic of extraordinarily loose central bank policies which we witnessed both post-2008 and during the last six months. What would you rather have central banks do?It’s not about central banks, but about the role of governments that we have come to expect, and financing is a very important role of that. There is very little tolerance to pain, and you want to rescue all the time. In the 1980s, the size of global financial markets and the size of the global economy were roughly similar. Now, the size of the global financial market is four times larger than the size of the global economy. I think one of the very important turning points was in 1987 when Alan Greenspan (then US Federal Reserve chairman) decided to cut interest rates when the market crashed, and the economic implications were not very clear. The problem now is that it’s become a never-ending cycle — it’s a constant stimulus. There are real consequences to these policies that may not be visible on a daily basis; it leads to zombie companies, that means lower productivity, startups get crowded out. That’s the reason productivity is declining even when we are in the middle of a tech revolution. India has gone from the fastest growing economy just a few years back to hitting an 11-year low. How do you rate the government’s fiscal and policy related responses to the pandemic?I think that the government really had no choice. People keep asking for stimulus and it reminds me of a line from ‘Top Gun’, my favourite movie, which is: your ego keeps writing cheques, which your body can’t cash. I find the idea of stimulus very irresponsible because we try to compare ourselves to the US or the UK. We have to be clear that we are a developing country, we are large, we are important but at the end of the day, for us to keep asking for more and more stimulus, because the US is doing it or even Germany is doing it, is setting the wrong benchmarks. We went into this crisis with one of the largest public debt and fiscal deficits in the world. To argue that we should do massive stimulus is just unrealistic.But the government is also in a Catch-22 situation — they have to promote GDP growth and look at the fiscal math. How to balance the two?Do we know that in this country we have had more than 1,000 schemes? The Centre doesn’t even know and there is an audit still going on, I guess, of how many different schemes are going on and yet you see them coming up with one new scheme after another without quite knowing what the deliverable is. And, we continue to repackage schemes. So, this is an endless path that we can go down. As far as getting growth again, it very much has to be a reform agenda. The critical point is not so much about what the stimulus should be but the other stuff that we should be doing or should not be doing.

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