would have realized that an analogy about potato chips could reflect the
factors affecting the economy of the country?
such examples were precisely what Dr. Narender Pani, a renowned economist and
journalist used to explain India’s economic situation in his talk on “5.5
trillion economy in 3 years…is India ready?” at RHF on July 5.
1) To understand the present situation one needed to go back to the early days of India’s liberalization when the path and destination were set to plan the way forward for growth. To go from the present GDP of $2.7 trillion to $5 trillion by 2024 was pretty nominal taking into consideration the rate of inflation. But it will not be easy to go from 7 to 5 in the global ranking list without additional effort, particularly to go past Germany and Japan. Even to get anywhere near the target India has to have an annual growth rate of nearly 9%, particularly when the near term growth projection is only around 6%.
2) The economy is not in the best of shape. Lack
of demand meant that exports declined and imports became more expensive.
Investments were made in Infrastructure but that did not help. It was a Catch
22 situation because fixed cost was high but utilization was low. This hit the
worker intensive industry the most because of reduced demand. An example was
the garment industry in Bangalore which attracted immigrant labour from other
states. As the industry grew, the cost of living went up in the city and
resulted in higher cost of the finished product. This resulted in the flight of
industry to a cheaper country like Bangladesh.
3) The slowdown was also
compounded by the share of agriculture going down to 14% in the contribution to
the economy. Plus there was no increased domestic demand to offset loss of
4) A significant factor in the
economic slowdown was the lack of capital available for industries to grow.
Foreign Direct Investment did come in but what hurt was the lack of domestic
private investment. In earlier days Indian industry could tap capital markets
to fund growth but today that too has dropped. Compounding this is the high
level of taxation. A holistic look at drivers of growth is required to
kick-start the economy.
coming back to potato chips. When foreign brands of wafers, like Lay’s wanted
to enter India, naysayers feared that this would be the end of Indian
entrepreneurs in that field. But the fact was that these foreign branded chips
occupied the creamy layer while local brands like Hot Chips occupied the lower
but larger platform and grew. Thus the market for potato chips actually
There were several insightful questions from the audience which the speaker patiently answered.