Intro: This week on Socio-Economic Voices we have Dr Aruna Sharma, Practitioner Developmental Economist who breaks down the basics of the Indian economics and Sensex as well for the easy understanding of the common man/woman. Former Secretary to the Government of India, Dr Aruna informs Senior Journalist Mahima Sharma that for the betterment of the masses just cutting the excise duty on oil imports is not a long term solution to keep the rising inflation under control; she asserts that India needs to cut down its dependence on oil. Dr Aruna informs that due to the lack of demand for consumer products in the wake of rising inflation, people are looking for avenues like Crypto Currencies for higher returns on whatever small savings they have. But she warns of the adverse effect of the same. On the other hand, she asserts that MSMEs need to be brought into an active fold of e-commerce to bring them back on track and encourage more employment. The former Secretary Steel, Government of India Dr Aruna, also informs that Stainless Steel is the next gold. How all this and more must be done, Dr Aruna shares below in a very insightful exclusive interaction:

MS: Will measures like Repo Rate hike by RBI and excise duty cut on fuel prices be able to tame the rising inflation? If not, then what kind of policy changes at the grassroots does the Central Govt need to make in order to assure sustained relief to the masses, bring back the Rupee to higher economic levels and bring the economy back on track?

AS: Inflation rate in India is definitely the prime concern. In March 2022 the WPI (Wholesale price index) is rising and is at 13.68%, CPI (Consumer Price Index) is 7.5% again on rise, the high WPI will have its impact in coming months on CPI and thus inflation will continue to increase in coming months. The upper tolerance level for RBI is 6% and for the last 5 months it is more than that.

The tools available with RBI, under Flexible Inflation Targeting Framework (FITF), to tackle increasing inflation, are exchange-rate pegging, monetary targeting and inflation targeting. RBI has taken steps on each one of them by no increase in repo rates for a long time and now with the increase in interest rates, inflation in economics is good if it triggers demand, but presently the case is just the reverse. The steps needed are to trigger the demand and thus more money in the hands of people. But Mahima, what’s actually happening is that, the increase in interest rate for credit is having just the reverse impact.

John Maynard Keynes emphasized that money in the hands of the working class boosts the demand for Industry. That is where the role of Government comes to supplement the steps taken by RBI to tackle inflation. The steps are wage and price controls. Presently the Government for price control has put a ban on export of edible oils and pulses, suspension of futures trading in wheat, rice, urad and tur dal i.e. pulses and extension of stock limit orders in case of pulses and rice. This is to control price rise in essential food items. Besides, there is reduction of import duties on raw materials to reduce the production cost expecting impact on the final product price but enhancement of export tax may end up in reduction of production and underutilization of capacity. The reduction in excise duty on fuel is a welcome step as it has a cascading effect.

However, the rising inflation needs ICU (Intensive care unit) treatment. The prime focus has to be to enhance the demand so that the virtuous cycle of spending and thus more manufacturing is triggered. The wage increase can be triggered by increasing the wages in MGNREGA, this will trigger rural income and thus demand in rural areas. Second most important is to bring down the excise duty on fuel more drastically to 50% for at least 6 months, as the cascading effect will be immediate by bringing down the price of goods, increase demand and increase manufacturing, thus creating more employment and more and more demand, the virtuous cycle. FMCG sales are showing downward trends with a decline of 4.9%. Manufacturers are resorting to small packs. The non-food item decline is by 9.6%, thus the reduction in fuel price will have an impact in increase of FMCG sales and trigger manufacturing.

The apprehension of loss of revenue by excise duty will be around four lakh crore, but then it will have a positive impact on the two major issues the country is facing, unemployment and loss of demand even of FMCG (Fast Moving Commercial Goods). If demand increases, the loss will come back to some extent in terms of GST. These two measures, increase in MGNREGA wages and drastic reduction of excise duty on fuel, will put the economy back on track. Supplement it with providing working capital and reduced interest rates to MSMEs, they are the backbone to trigger back the economy and are hit badly due to Pandemic and continued reduced demand.

MS: Inclusion for all, equality for all and financial security for all. How can India achieve this far-lived dream?

AS: India is signatory for SDGs (Sustainable Development Goals), 11 out of 17 SDG goals by 2030 is to work on poverty eradication with the guiding factor of ‘no one is left behind’. It is not achievable by focusing only at macro level and aggregated numbers but needs to have a targeted approach to each household if rhetoric is to be made a reality.

With digitization it is possible. SAMAGRA, a concept (first developed in the state of Madhya Pradesh, now adopted in eight states under similar names) is a Common Household Database and all household and individual G2C schemes work on the same database in their vertical columns. This enables a shift from ‘welfare’ to that of ‘entitlement’. The database gives all those who are entitled and thus ensures no one is left out. It enables horizontal information of what all benefits have been given to households in terms of housing, scholarship, skilling, water, credit, insurance, pension, food security and enables better targeting as per needs to ensure optimum result and results in shift from subsistence to sustainable to surplus income levels.

India has 6 lac MSMEs, every year if 10 youths at Government cost can be attached for skilling to these SMEs will get better trained youth that is employable. Systematic approach is the only answer by adopting SAMAGRA philosophy. All inclusive for prosperity i.e. Samruddhi.

MS: Amid and post Pandemic, the e-commerce sector burgeoned like the IT sector and is expected to surpass the US by 2034. How can e-commerce be integrated with the MSME sector to revive it from the major downfall it saw in the last three years? What all steps need to be taken?

AS: MSME is the backbone and the need is to list the micro, small and medium six lakh entrepreneurs. To create 90 million jobs by 2030 and have a sustained growth rate of 8%, MSME will play a very vital role. Thus, MSME needs focus in terms of soft loans, skilling and most important handholding for expansion of their sustainable market within and outside the country. This is in sync with the country's focus on Make in India and to enhance the export of MSME from 48% to 60%.

Consumer behavior is now more and more purchased from e-commerce platforms. During the pandemic it accelerated and it is estimated it will be a $400 billion economy. Year on year increase in e-commerce has been 5.6%. MSME have to ensure the reach of their product to wider consumers and here the symbiotic relationship steps in the E-Commerce platforms are to skill and enable them to board, present their products and expose them in new markets. The biggest advantage is prompt payments (thus MSME will need less working capital) and real time feedback in terms of customer feedback.

The numbers show that e-commerce platforms by removal of intermediaries enhanced the margin and enabled them to spread in new geographical areas. Textiles, especially towels and bed linens have found new markets in Europe and USA and now have a sustainable stream of market. Metals and its products are also effectively using e-commerce platforms for trading.

Mahima, let me share with you a study undertaken by e-commerce players - it shows those MSMEs that integrated with ecommerce platforms experienced an increase in sales, turnover, and profits. About 70% of the 476 firms surveyed that integrated with e-commerce platforms during the Covid situation, experienced an increase in sales volume. Some ecommerce platforms have released numbers of providing cumulatively created more than 1.16 million direct and indirect jobs, enabled nearly $5 billion in cumulative exports, and digitized over 4 million micro, small and medium enterprises (MSMEs) in India till date. E-Commerce platform is thus a huge opportunity. Government is also thinking of bringing out the open source platform Open Network for Digital Commerce (ONDC) for easy boarding.

However, a holistic approach is needed by resolving pain points of making e-commerce and retail sale policies. Mahima right now the hiccups here are: MSME to board e-commerce have to have GST registration and thus burden of compliances losing advantage of GST threshold of Rs. 40 lakh annual sales being exempted. This needs to be made on par. Second is the PPoB (Principal Place of Business), the online makes it digital and does not require physical presence to expand within or outside a State, but still need PPoB. Need is to replace it with a Place of Communication (PoC). On boarding e-commerce platforms the manufacturers are also subjected to extra two percent extra taxes in terms of mandatory TDS and boarding. Added to it is the compliance burden. E-Commerce is the first step to digitally include the MSMEs, but then the process needs to be more conducive. E-Commerce can be an effective arm to make MSME more efficient and expand their business.

The threats are overblown in terms of personal data security and that of conflict with neighborhood shops. The anonymized data is stored and thus not accessible by these platforms. The RBI stringent measures like e-mandate and tokenization due to unpreparedness of banks is still a non-starter. Card of file is an effective means to address grievances than tokenization. It is important for data access for grievance redressal at the merchant for speedy resolution. On the next issue, many of the neighborhood shops are now using hybrid models to take advantage to expand their market and meet the choice of consumers for e-shopping. Cloud kitchen is one of the successful examples.

MS: While the RUPEE continues to fall, Crypto-currencies do fluctuate but keep stabilizing. Indians are investing more and more in the latter. What kind of threat do Crypto-currencies, which are here to stay, pose to the Rupee, unless these are regulated soon? And yes, what kind of regulations “beyond” data security, investment security is needed?

AS: Onslaught of pandemic followed by Russia-Ukraine war - the revival of the economy has been jeopardized. However the country cannot keep blaming external factors and need to take immediate steps like reduction in excise duty on fuel and enhance wages to trigger demand economy rather than focus on just supply economy. The low demand is encouraging people to look for avenues for higher returns on whatever small savings they have. Crypto as an alternative option emerged.

Mahima, here it is important to understand that one policy measure that is clear about Crypto in India is it will not be legal tender and as has been directed by the Supreme Court will not be banned. Government has also effectively under ASCI (Advertising Standard Council of India) has ensured that every advertisement clearly highlights the speculative nature of Crypto.

Thus, Crypto is operative in India without being classified clearly as digital asset class and no regulation as yet. This therefore puts the confusion as the steps resorted by the government is heavy taxation in terms of 30% of income tax on profits made with no option of offsetting losses of other transactions , 1% TDS with mechanism to collect the same is still evolving and there is talk of the highest slab of GST. Now if Crypto is not a legal tender, it will be an asset class and it is important to classify it and regulate at earliest for clarity. However, the above measures and a slide in crypto earnings did not have a major downfall among investors. As market claims 20 million investors to a tune of $5.3 billion (there is no authentic data) are in crypto assets in India. Many of the investors are young and well penetrated from rural areas.

CBDC (Central Bank Digital Currency) to be released by RBI, is the legal tender targeted for both wholesale and retail release of digital currency, ease the transactions across borders and ensure security. However, Crypto if regulated with mandatory KYC (Know Your Customer) and AML (Anti Money Laundering) measures, (crypto exchange SRO are already resorting to) can emerge as asset class with definitely no intrinsic value (stable coin has) but tremendous potential to trigger innovations and block chain leading to Web 3.0. That is the reason why the US, Dubai, Singapore, EU have come out with regulation for crypto and are striving to be lead in Web 3.0. India should not miss the bus.

MS: The Russia Ukraine war has exposed the vulnerability of India through its dependence on fuel import. What kind of domestic measures need to be taken so as to reduce the impact of such future incidents?

AS: India imports 85% of its oil requirement for fuel and is the fourth largest LNG importer. Only 2% i.e. 12million barrels come from Russia. Thus, the impact of war on fuel dependence is 2% but then the rising fuel price internationally has been a burden. The EU that imports 40% of their fuel requirement from Russia is back on the drawing board and accelerating use of alternatives especially commercial manufacture and use of hydrogen gas and other non renewable energy sources. Coal has again come back as the center stage in the US for the power sector.

So Mahima, India thus needs to be in readiness to shift to hydrogen gas source the moment the technology is tested and made available. India is gifted with coal, policies that ensure undisrupted supply is the need of the day--- for another 50 years coal will be a major source for energy. Besides, Syn-gas or synthesis gas (a fuel gas mixture consisting primarily of hydrogen, carbon monoxide, and very often some carbon dioxide) from coal should be encouraged. India is focusing on non renewables especially solar and capacity is on increase. Thus, clear policies on coal, Syngas, encourage non renewable energy and have PLI like schemes for shift to hydrogen gas fuel.

It is important to go for cleaner energy as carbon footprint can be used as non tariff barriers for our exports.

MS: India's renewable energy mission seems to have been slowed down amid the ongoing global economic slowdown. What measures and policy changes are needed on an immediate basis so as to bring India's Net Zero dream a realization?

AS: India is the world's 3rd largest consumer of electricity and world's 3rd largest renewable energy producer with 38% of energy capacity installed in the year 2020 (136 GW of 373 GW) coming from renewable sources. It is an option that the country is continuously targeting to enhance, however for Net Zero realization it is important to have sector wise roadmaps of what is desired and is achievable by policy support and facilitation to achieve the same.

The use of electric vehicles needs lithium batteries that are import dependent for raw material and will cause disposal issues in future. Hydrogen fuel batteries for transport are a more green option. For the manufacturing sector the alternatives like Syn-gas or synthetic gas made from coal, needs to be encouraged and industry has to be in readiness for the shift to hydrogen gas technology that is vigorously being pursued across the globe.

India will be using coal for another 50 years but then measures need to be incentivized for recycling of coal gas emissions (by treating them under renewable energy category) and incentivize use of syn-gas.

MS: Stainless steel prices are rising while the stock prices are falling. But don't you think stainless steel from India is the next Gold, which can contribute extremely well in National Growth? If yes, what kind of better policies thus India must look at?

AS: Capacity in India for stainless steel production is 50 lakh tonnes and runs at only 60% capacity (ability to work at 85% capacity) as a major threat is dumping by China and Indonesia. The suspension of anti-subsidy duty on China and suspension of interim anti-subsidy duty on Indonesia resulted in a surge of imports by 177%. There is mis-representation that the MSME end product producers will be badly hit, but now with BIS standards and stainless steel abundantly used in food products it is important to have end products of set standards. Indian manufacturers are capable of providing adequate quantity and quality of stainless steel at competitive prices. Consumption of stainless steel has new avenues and consumption increase is adding to the growth story.

Yes Mahima, Stainless Steel is next gold if policies are conducive to enhance production (Make in India) and not become a dumping ground for countries like China and Indonesia with the strict enforcement of BIS standards. Twelve per cent of the stainless steel is used in construction and infrastructure, 13% in automobiles, railways and transport, 30 % in capital goods and 44% in durables and household utensils and 1% in others. Stainless Steel is environment supportive (low emission footprints, recyclable, low maintenance, non corrosive), people friendly (production safe, inert, fire resistant, crash resistant, aesthetically appealing) and economical (longer life, lesser life cycle cost, higher returns), making it highly sustainable. Use of stainless steel pipes in water distribution after filtration brings down leakages by 26%, all municipal bodies should target for this switch, stainless steel usage is going up in making coach and coastal area infrastructure.

MS: Please break down the basics of Stock Markets and Economic Stability for the common masses, who have a perception that factors like Sensex are governing the economy, which actually is governed by various other things.

AS: Sensex never governs, it is just a reflection of supply and demand in the investment market. An economy with high capital expenditure will have a thriving stable sensex. But if investments of FDI (Foreign Direct Investment) and FPI (Foreign Portfolio Investors) are for quick gains then Sensex will be volatile depending on better returns in India or other international markets.

India has nearly 29 million Demat accounts and new entrants score is high, stocks are becoming an option for investment. The market capitalization in the stock market is around US $ 3.4 trillion (10th largest stock exchange is NSE). The size of the Indian economy is the third largest in purchasing power parity is GDP of $10 trillion. So the positioning or performance of Sensex is not a correct mirror of growth of a country but a factor of returns potential against different options of investments across the globe. Sensex does not govern the economy but reflects the gains of the economy.

The real contributors to economy is High Frequency Indicators like collection of GST going up and being stable at 1.4 lac crore per month over last 4 months, In FY22, PMI (Purchasing Manager Index) that is at 54%, Core Sector performance has shown rise of 8.4%, exports is on rise, capital expenditure is now rolled after pandemic slumber and FY23 GDP growth thus is expected to be 7.8% that in FY22 was 8.7% but was on a very low base of FY 21. Thus, the economy is run by these High Frequency Indicators supplemented by demand enhancement measures.

MS: Social security and financial education - two interrelated factors that Indians are far away from. The pandemic exposed these vulnerabilities, despite the fact that India became a digital economy long before the lockdowns overthrew the common life. What kind of framework and policies are needed to make the Indian Citizen self dependent?

AS: Government, under the Constitution’s Article 21 is bound to ensure ‘protection of life and personal liberty’ and life means 'Dignified Life' is to ensure quality education, best of health care and employment opportunities. Thus, it is not an issue of self-dependent citizens alone but the policies have to be formulated for ensuring equal access to all for good education and health care. Mahima, here I would like to distinguish between ‘having access’ and ‘gaining access’. Just having public health care infrastructure is ‘having access’ but equipping it with doctors, health care, human resources and necessary equipment at an affordable price is ‘gaining access’. Same applies to schools with teachers and good teaching methodologies. Combination of online modules with physical teacher presence can have an impact. India with 65% youth for good demographic dividend needs to be mentally positive and physically healthy and well skilled otherwise it will become a liability.

Mahima, you see, the financial literacy is not bad in the country, everyone arranges for their survival, but the challenge is to bring the 28% of population from subsistence level to that of sustainable income levels. That is possible by focusing on land productivity, strong MSME and targeted social security measures using the SAMAGRA -like model of ‘Common Household DataBase’.

MS: One last question, the way pandemic lockdowns fueled the population of India, where do we stand in the next 10 years in terms of shortage of resources? Isn't a population control law the need of the hour?

AS: The National Family Health Survey - NFHS-5 has shown fertility rate drop from 2.2 to 2.0, the wide inter regional variations is a challenge where the five states have not achieved a replacement level of fertility of 2.1. The five states are Bihar with 2.98, Meghalaya with 2.91, UP with 2.3, Jharkhand with 2.26 and Manipur with 2.17. There is no need for enactment of any population control law as, minus these 5 states, others are on track and even these states have shown declining rates (Bihar declined from 3.4 during NFHS 4 to 2.9) by adopting education and awareness mechanisms. The need is to again make family planning measures easily accessible and incentivize small families by better social protection measures in terms of scholarships and priority in government scheme benefits.

Mahima, the goal must be to focus on the poverty-driven need to have more children among the poor. So better income levels will have a better impact. Thus, instead of ‘populating control law’ what is needed is targeted hand holding by better skilling, to enhance the quality of life with the concept of ‘no one is left behind’ for a sustainable income.

About Dr Aruna Sharma

Dr Aruna Sharma an Indian Administrative Officer of 1982 batch Madhya Pradesh Cadre retired after her work as Secretary in Steel and Information Technology in the government of India. She has two books reaching the Last Beneficiary: Resource Convergence Mantra Model (2008) and Impact of Recourse Convergence in Policy Making, Program Design and Execution (2014) released by UNDP. FAO has also published her work on food security. Her latest work is the book U@Game Changer for Inclusive Growth for public representatives. Her article on “The Samagra anti-poverty programme in Madhya Pradesh: Integrating household data, overcoming silo-problems and leaving nobody behind “is accepted for publication in Development Policy Review. The financial inclusion model involving all kinds of financial institutions to ensure access in a 5km radius was developed along with popularizing RuPay cards. This is now incorporated in the Financial Inclusion document of RBI. Besides, envisaged and by coordination developed to have a common National Scholarship portal and GeM portal for procurement by the Government to list few.

She was Secretary Information Technology and later Secretary Steel in the government of India. She was instrumental in bringing in a holistic approach that visualized and drafted the National Steel Policy and also clear policy on preference to local manufacture that has enabled complete revival of the sector. The amendment to GFR rules by adding the life cycle cost has been the game changer. She was also Director General Doordarshan where she gave world class coverage to Common Wealth Games 2010 and that sent benchmarks. Her focus of work is also in the area of Water Security and enhancing local jobs.

She is in a 5 member High Level RBI committee on Deepening of Digital Payments constituted by Reserve Bank of India. Access to preventive health care has been the focus when she worked as Secretary Health and Family Welfare. She has been a member of the National Knowledge Commission on health care and education. Her doctoral work is on psycho-barriers in access to public health care. Dr Aruna is a Fellow with University of Bath in UK, and working on accelerating the success and sustainability of SDGs by resorting to a common household database. She is an alumnus of Harvard Kennedy School. Her forte is Tech and FinTech, Digital world, core sectors and environment issues. She is director in core sector, IT and FinTech companies and in the board of SRO of micro finance MFin.

About the Interviewer

Mahima Sharma is a Senior Journalist based in Delhi NCR. She has been in the field of TV, Print & Online Journalism since 2005 and previously an additional three years in the allied media. In her span of work she has been associated with CNN-News18, ANI - Asian News International (A collaboration with Reuters), Voice of India, Hindustan Times and various other top media brands of their times. In recent times, she has diversified her work as a Digital Media Marketing Consultant & Content Strategist as well. Since March 2022, she is also an Entrepreneurship Education Mentor at Women Will - An Entrepreneurship Program by Google in Collaboration with SHEROES. Mahima can be reached at media@indiastat.com

Disclaimer : The opinions expressed within this interview are the personal opinions of the interviewee. The facts and opinions appearing in the answers do not reflect the views of Indiastat or the interviewer. Indiastat does not hold any responsibility or liability for the same.