On Monday, Sept. 24, a standing room-only crowd gathered at the Kenan Center in Chapel Hill to participate in a fireside chat with Krishnamurthy Subramanian, the 17th chief economic advisor to the government of India. The program was led by UNC Kenan-Flagler Business School professors Anusha Chari and Christian Lundblad.
At 41, Subramanian is the youngest person ever to fill the role of chief economic advisor, providing research and information to the Indian government and Prime Minister Narendra Modi. Subramanian led the development of the recently released Economic Survey 2018-19, which highlights India’s economic challenges and presents possible solutions.
From Subramanian’s perspective, the Indian economy needs to grow at an annual rate of 8% to reach the objectives set out in the survey. Since the country’s growth rate is currently at 7.5%, Subramanian said he feels that this goal is “ambitious, but not unachievable.”
Subramanian provided modern historical context for the current state of India’s economy. In 2009, India was investing 40 cents to the dollar of its GDP. By mid-2017, that ratio had dropped to 28 cents to the dollar. Bad investments and problems in the banking and financial sectors were largely responsible for this investment reduction, he said.
Subramanian stressed investment as a key driver of economic activity in India, citing it as “most critical for growth” and necessary for creating a “virtuous cycle” in which investment results in productivity gains, which generate a healthy export market, which creates jobs, which increases purchasing power and thus consumption, creating an attractive investment climate, which starts the cycle all over again.
As the world’s seventh-largest economy, India has a unique business landscape, said Subramanian. Government regulations and incentives that favor smaller firms have resulted in an economy in which 85% of firms are responsible for less than 25% of the country’s productivity. This is because labor laws in India have historically favored smaller businesses. As a result, the overwhelming majority of Indian firms employ fewer than 100 people. This large to small firm imbalance, said Subramanian, is a direct result of regulations that de-incentivize growth. “It’s like teaching your child to ride a bicycle, but never taking the training wheels off the bike,” he said, adding that the solution to stagnant firm growth is to create incentives that support younger, not smaller, firms, “nourishing dwarves into giants.”
Subramanian also touched on his country’s uneven distribution of wealth. While he lauded the recent streamlining of India’s welfare programs, which has helped increase efficiency and employment and decrease the country’s wealth gap, he added that government programs need to be supported by trickle-down investment. Subramanian closed by emphasizing the importance of improving public health and education to achieve economic equality and stability. “The three top priorities in the Indian economy today are jobs, jobs and jobs,” he said. “To fill those jobs, we need a better ROI on our investment in healthcare and education.”