Fiscal discipline, digital economy must be the policy focus: Ruchir Sharma

BL Chennai Bureau | | Updated on: Jan 16, 2022
Ruchir Sharma

Ruchir Sharma | Photo Credit: RAGU R

Global investor and author of several best-selling books, Ruchir Sharma, on Sunday said it is important for India to continue with its conservative macro-economic policies. During the pandemic the country did not over stimulate the economy like Brazil and Turkey, which have ended up paying the price with macro-economic instability. 

He was delivering the 40th Palkhivala Memorial Lecture on the subject ‘The Post-Pandemic World’ organised by the Palkhivala Foundation, Chennai. The memorial lecture series is conducted around January 16 every year to commemorate the birth anniversary of eminent jurist, author, and diplomat Nani Palkhivala.

Sharma offered three prescriptions to the Indian policy makers as the world emerges out of the pandemic which include continued focus on fiscal discipline, keeping an eye on the rising inflation and continued focus on booming digital economy. 

He, however, added that India is unlikely to achieve a higher economic growth rate in excess of 8-9 per cent and urged policy makers and economists to give up ‘anchoring bias’ towards higher growth rates seen historically. 

“Give up the anchoring basis and stop talking about 8-9 per cent type economic growth rates given the change in demographics and other global headwinds. In doing so you are going to end up making a lot of policy errors,” he said. 

Accelerating trends

Sharma said, contrary to the popular belief, the pandemic has not disrupted the world much, instead accelerated some of the mega trends. He added that declining demography, declining productivity, debt and deglobalisation are the four mega trends which have been further accelerated in some way or the other by the pandemic.

Sharma said the global economic growth rate is very heavily influenced by the number of people coming to the workforce, which in turn, is influenced by the population.

“In mid-2000, the world’s working age population began to fall. That is why since the 2010s the global economic growth rate kept coming down across the world and it became difficult for countries to grow at the pace of the 1990s,” he added. 

He said 2 per cent growth in the working age population is essential to have a high economic growth rate and in case of India, it is currently at 1.5 per cent a year. He also added that the pandemic has also led to a drop in productivity since emerging technologies are focused on consumer aspects and not focussed for business development. 

Debt share

On debt, Sharma said the amount of debt in the global economy is more than four times the size of the global economy and more than 25 countries have debt more than 300 per cent.

“India’s total debt as a share of the economy is 170 per cent while it may not be high as compared to rich countries but it is high for a country of India’s per capita level which is $3,000 per annum,” he added. 

Terming de-globalisation as a serious concern for growth, Sharma said, one good story is what India was able to do with data flow and digitisation is very significant. “On this aspect, India has done really well over the last few years. In the digital revenue as a share of the economy, India ranks around 12-13 in the world which is very significant. The state should further enable this instead of imposing any restrictive policies,” he added.

Published on January 16, 2022
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