Siddhartha Ahluwalia 1:26

Hi, this is Siddhartha Ahluwalia, your host today. I’m also founder of Neon Fund, a B2B SaaS focused venture capital fund, investing in seed stage in the most enterprising B2B SaaS companies coming out of India. Today I have with me Subhash Chandra Garg.

I’m so glad to have you, sir. So you have been an IAS officer for 36 years?

Subhash Garg 1:45

That’s correct. I joined the Indian Administrative Service in 1983 and left it in October 2019, exactly after 36 years and a couple of months, one year ahead of my normal date of retirement.

Siddhartha Ahluwalia 2:02

And you have been a Secretary in Economic Affairs, Finance and Power Secretary for the Government of India?

Subhash Garg 2:08

Yes, in Government of India, I joined as Secretary Economic Affairs in July 2017, continued in that position for two years until July 2019. And in between, from sometime in February 2019, I assumed the charge of the Finance Secretary as well. I believe your viewers might be knowing that in the Government of India, in the Ministry of Finance, the system is that whoever amongst the five secretaries is the senior most is designated as the Finance Secretary.

So when I became the senior most, I was designated Finance Secretary. And when I decided to leave in July 2019 and gave a notice to the government, three months notice is required. Otherwise, you make a payment of the salary for three months.

So at that time, I was posted as Secretary of Power. So I did have two substantive charges, Secretary of Economic Affairs and Secretary of Power, and also the designated Finance Secretary for a couple of months.

Siddhartha Ahluwalia 3:26

Your book, $10 Trillion Dream, The State of Indian Economy and the Policy Reform Agenda was widely received, appreciated. And your next book, which is coming in the 10 trillion dream got The $10 Trillion Dented. Right, which shows that, right, why the dream has will take more amount of time to reach there.

Subhash Garg 3:48

So, see, I was Secretary of Economic Affairs in charge of budget in 2019-20, when the then Finance Minister, Piyush Goyal, in the interim budget 2019-20, which was presented on 1st of February 2019, laid down the vision of the dollar-10 trillion dollar economy. In that budget, the government did say that we are on course to be a 5 trillion dollar economy by 2024-2025 or so.

And after eight years therefrom, so sometime in the middle of 2030s, the government would like India to become a dollar-10 trillion economy. That was the, and since I was quite deeply involved in that process, in fact, those were, to some extent, my own words, which the government led by Mr. Modi sort of blessed, so to say, and adopted that as the policy of the government. So this became, in a way, the national sort of dream, the dollar-10 trillion dollar economy by 2030s, middle 2030s.

So I wrote that book, which you referred, that came out in early February 2022. And that, in a way, but it was set in the context of 2019-20. That was the first year of Mr. Modi’s second term. So I have always thought, and the Penguin also believed in that particular way, that when a particular government completes about five years of its term, it would be a best time, it would be the most appropriate time for making an assessment that have you made the due progress, the progress which is required for attaining or achieving your goal of the dollar-10 trillion economy. And as you know, Mr. Modi’s second term got over in May this year. So 23-24 happens to be the fifth year of the final year of the Modi 2.0, if I may put it that way. And that is, in a way, five years down the line from the time the dream was laid out or set off. And we thought that this is a very good opportunity. It’s a very good time to make an assessment.

And this book, The $10 Trillion Dream Dented makes that assessment. You picked on the word, the dented, which is very relevant, because this is the gist. This is the overall conclusion of the book, that the dream, which required a certain kind of progress to be made, certain kind of growth to be achieved, certain kind of reforms to be done, and the per capita incomes and others to be raised towards the goal of the $10 Trillion Dream, in fact, has not seen that kind of progress.

And therefore, the analogy of being described as dented, if I can make a comment, for five years, the average growth, which the Modi government achieved, maybe it’s also partly because of the COVID in between, was only about 4.5%. That growth is not enough. Likewise, in dollar terms, if you see the growth in five years has been about 5.6% or so, whereas you require in dollar terms a growth of about 9 to 10% plus to attain that goal. You started out at the GDP of, in dollar terms, of 2.7 trillion, and you would reach to 10 trillion in about 15 years or so, from 2019 to 2034-35, if we take it that way. And if you have not been able to achieve that progress, that dream is in a way adversely affected. That’s why we call it that the dream has got dented.

Siddhartha Ahluwalia 8:54

As an Indian citizen, I would have preferred that, you know, the next title of the book had been The 10 Trillion Dream Accelerated.

Subhash Garg 9:03

Of course, this is what they intended. The dream flourished, or dream got accelerated, or got speeded up, or we are doing finer than what the normal trajectory is. I hope that this changes course in the current term, and we make up for the lost ground.

And when I write another book in 2029, I would be very happy to style this dream resurrected, or the dream speeded up, something to that effect. So I agree with your sentiment.

Siddhartha Ahluwalia 9:49

And today we are at what, $4 trillion? Or less than?

Subhash Garg 9:52

Yes, so 2023-2024, and we have the IMF publishes this data in current US dollars. So IMF data for 2023, which for India is 2023-2024, is now $3.58 trillion. So not $4 trillion, but $3.58 trillion. You can take it $3.6 trillion. So $2.7 trillion to $3.6 trillion, we have covered less than $1 trillion of the gap from 2019 to now.

Siddhartha Ahluwalia 10:32

And how much did we cover in the first term of Modi government from 2014?

Subhash Garg 10:36

See, first term, the Modi government had not laid down this dream. So it cannot be related to the dream at that time. But broadly speaking, if you take it, I have given these data in the book as well.

So when the UPA government assumed the office in 2003-2004, I think India’s GDP was in dollar terms somewhere close to $6.67 or $0.7 trillion. And when they demoted office in 2013-2014, remember that was a period of very high growth and the dollar terms still higher. So in 2013-2014, the GDP in dollar terms had reached about $1.8 trillion. So it had virtually tripled. I think the growth was about 10% in that period. But the 10-year period of Narendra Modi from 2014-2015 to 2023-2024, it has gone up from $1.8 trillion to something close to $3.6 trillion. So it’s a little less than doubled. So while it was three times in those 10 years in dollar terms, it is about two times. So it has been a little slower.

Of course, this has been higher in the first term. I think it was about 7% in dollar terms, then about 5.6% in the second term.

Siddhartha Ahluwalia 12:27

So my reading after, you know, understanding your book, there are a few factors that why the basic infrastructure for $10 trillion economy is fully not ready yet. One of the reasons is, as you pointed out, that 50% of the economy or the 50% of population is still dependent on agriculture. The developed nations of the world, long back, migrated like 30% of their population from agriculture to USA, you mentioned it’s like 2% right now, China, it’s 10% today.

And the world is again seeing the next phase in which the heavy dependence on industrialization, they are moving their population from industrialization to service-based economies. Now, US is doing it, China is doing it like right. And this is a narrative that China doesn’t want any labor factories in their country right now.

They’re happy exporting it to Cambodia, Vietnam, to India, or not to India, not yet decided. But India right now has a manufacturing dream that we want to bring more and more people from, let’s say agriculture into manufacturing. Wouldn’t it be better suit India to achieve that $10 trillion economy dream, to bring people from agriculture, train them into services and bring them directly into services.

We can learn from the world.

Subhash Garg 13:54

Very true. You see, the economic value addition from time to time takes place in the goods and services which are produced in that particular phase of the economy. So for thousands of years, it was primarily the agriculture which produced food and clothes, clothing for the people.

And those were their principal requirement for millennia in the world, the food and the clothing, right? There were very few, what we may call as industrial goods. So there would be, of course, some utensils, there would be some things made of wood, et cetera, or cotton, or some things made from the stone like house, et cetera.

So there would be some things which were there, but predominantly, the goods produced in the economy were agricultural. And for no reason, a very large population of the countries concerned were sort of working in agriculture. All these countries which you mentioned were also primarily agricultural at some point in time.

The US of 18th century was also predominantly agricultural. China was largely agricultural. Of course, there was silk and many other things, but those are part of, again, the wider agricultural economy.

Animal husbandry and silkworms, et cetera, you know it. So when the industrial revolution started coming into the humans’ lives sometime late in the 18th century and flourished in 19th and 20th century, that was the time when many countries in the world sort of migrated from agriculture to industry, and the labor shifted to industry. That was the phase for 200 years of industrialization, if one may call it.

And that phase has seen America, many other countries, Europe, elsewhere, the dependence for the employment in agriculture getting reduced to 1% to 5%, 10% max. We did not industrialize fast enough for whatever reasons. The subject where you can have arguments for hours, why did we not do it?

But fact of the matter is that we did industrialization by getting into textile mills, one or two steel mills and other things. But by and large, we did not industrialize. We were very slow in industrialization.

All over the world, countries after countries moved and adopted industrialization as the principal mode of life. Forget America, Europe, even the Asian countries, which were the bulwark of the agriculture economy, so to say, whether it’s Japan or Korea or Thailand or Malaysia, or later the Chinas, earlier smaller ones like Taiwan, all of them have shifted very majorly from agriculture to industrialization. The industrialization has been done in those countries.

We, as I said, did not do it. Now what happens is, after about 200 years or 250 years of industrialization, the industrialization has also peaked. You now have enough capacity in the world to produce whatever steel is required, whatever aluminum is required.

These food processing industries, textiles, these are the bygone era industries. Textiles used to have close to about 70% of the industrial labor. Today, textiles worldwide does not have even 5% of the industrial labor, right?

When I brought out this in the first book, I did call that currently the industry is facing what agriculture faced in the last 200-300 years. It was being overtaken by industrialization. Now, as you asked me, manufacturing is basically the core of industrialization.

You can now think that you will shift to industrialization by ramping up manufacturing now. But the opportunity to do manufacturing has largely slipped away now. There is another big factor which has made manufacturing less employment-oriented.

This industrialization was basically also building machines to do work, what the labor was otherwise doing. As time went by, more and more sophisticated machines started coming in and replaced the human labor. In industrialization, there is a massive inflow of capital to undertake building machines, which is replacing or in fact has replaced vast amount of physical labor.

Today, if we are trying to do manufacturing or industrialization, I think we are trying to catch a train which has long left the station. We may still waste our time in trying to do that, but better thing to do is, what is the current train on which we should get on? The current train is the current train of services.

The current train is that of games, sports, entertainment, travel, personal services, health, education, and so much of it. That is the current train where you can get on for growth and employment. That’s why to my mind, it makes better sense.

I call the recent budget, which is trying to still promote manufacturing and the industrial employment by those on employment-oriented schemes as a 20th century budget. Precisely for this reason that you are trying to do something which is not going to give you very good and decent results today.

Siddhartha Ahluwalia 21:56

And what is impeding the government right now, let’s say, to bring people in agriculture to services based economy? Or is there no agenda for that?

Subhash Garg 22:07

See, this is a tough question. India still has close to 48-49% of its labor in farms, both as farmers and the landless agricultural labor. That is a predominant occupation.

Of course, it’s not a paying preparation. You find the agriculture contributing about 15% of GDP, but occupying 40-45% or 50% of the labor. Look at their families and all.

This makes a normal agriculture guy about six to seven times poorer than the other person who is working outside agriculture. If you want to get the people out of this poverty trap, then you have to get people out of agriculture and employ them somewhere else. So, which will also pave the way for more rapid industrialization, mechanization of agriculture will raise its productivity and will raise the income per person from the agriculture.

And those who move away from agriculture will be able to earn additional income, better income, hopefully, and get out of the poverty. So, to my mind, this is an eminently sensible thing to do. But why is it not being done?

Why this is a difficult thing at all for the politicians and the policymakers? Here, you have two broad explanations why. Number one, we don’t have a very good sense of where to go.

We spoke about manufacturing in the last 50-60 years. There was an opportunity where low-skill manufacturing is where the people could have gone. They have also moved somewhat to construction and others, which are part of the industrialization, so to say.

But there, the scope is reducing. The scope is not growing. So, you can’t go there.

For services, we have not explored. Many people actually don’t see the potential of services. Let me give you an example.

We participated in the Olympics recently. We won six medals. There were 987 medals at stake.

We won less than 0.4% of the medals. But who were the guys who were participating in the Olympics from India? Basically, we were good at wrestling.

Earlier, we were good at boxing and shooting. Many of these participants were actually from the rural areas. Sports today is becoming a very massive money spinner.

Look at what is happening in IPL. Many are now getting sub-IPLs. Delhi has recently created a Delhi PL.

Tamil Nadu has others. These sports and gaming, which the Prime Minister also referred to in his speech yesterday, the gaming has tremendous opportunity for creating employment and others.

Siddhartha Ahluwalia 26:25

What kind of gaming is this referring to?

Subhash Garg 26:28

This is online gaming. Real money games and others. Both game of chance.

That’s not the principal point. Where is the opportunity? In health services, you need to expand massively.

In education, you need to travel. The rural guys, to my mind, are eminently suitable for transitioning to sports, to gaming, to travel, to health services, to many of these things. But we are not treating that as the primary area.

We still are stuck on manufacturing. That’s one reason why politicians are not so aggressive in India in moving the agriculture people away. The second reason, to my mind, is more political.

The rural population is the largest voters, so to say. The largest proportion of voters is rural population. They are engaged in agriculture either as labor or as farmers.

If you want to do those reforms and modernization in agriculture, you will have to corporatize agriculture. You have to remove the land ceiling laws so that larger farms with more investment can be created. You would have to permit leasing of land.

We don’t allow our agricultural land to be rented out or leased. Whatever is happening is happening outside the legal pale. All these things, you would need to do it.

If you do it, then in the short run, definitely many of the farmers and the laborers which are deriving whatever little or more of the income from agriculture may face short-term problems of displacement. If you have not crafted out a path which is where you can go, more like we spoke about some of the services, you are facilitated to go into that. If you are not done, then there is going to be a pain.

If that pain comes and there is a distress in voters, they will vote out the politician. No politician is interested to take that risk. That is why agriculture remains most under-informed.

We call or our politicians call farmers annadatta or whatever, but this is basically to make them fools. If we can treat them as businessmen who are entitled to earn good income for supporting them and their families, I think that is a better thing to do. Make them businessmen.

Do not call them Annadaata. Expose them to competition. Expose them to uncertainty so that they transition out of agriculture.

That is the right path to do, but that is a politically risky path.

Siddhartha Ahluwalia 30:25

I think the more percentage of India’s population goes away from agriculture, hypothetically this 50% in some decades goes to 10%, the amount of subsidies that we have to do today in agriculture from taxpayers’ money is one of the largest in the country. That will go away.

Subhash Garg 30:50

I am of the considered opinion that the massive subsidies we have built into the agriculture is basically to compensate for the non-remunerative’ness of the agriculture. Agriculture is a very bad business if you do not subsidize seed, if you do not subsidize power, if you do not subsidize loans, if you do not subsidize fertilizers and you don’t buy their produce at international or high prices, if you don’t do that, then the net income from the farmers, of the farmers, would be much less than what it is today. So these subsidies, etc., are basically intended to ensure some income travels to farmers, howsoever low it is. And we discussed earlier that the farmers are poor because despite all this, this is the kind of poor incomes which farmers earn.

So subsidies are actually not helping much in either productivity of agriculture or making the agricultural guys, the farmers and the landless labor, prosperous. They are, that is leaving only that much, which is to make them, make two ends meet for them, to somehow sustain themselves. And remember one more thing, subsidies are basically concentrated in rice and wheat production.

And rice and wheat production is not entire agriculture. It is actually much smaller today than the value of milk produced. So you have so much of subsidies into production of a couple of crops and still the poverty remains, still the lack of productivity remains.

It makes sense for us to sort of change the system, change the incentives of the farmers to move away from, or make the rice and wheat farming also market-oriented. Like the milk, like the oil seed, like the pulses, and many other crops are cotton, right? So make it more market-oriented.

That is what is required. But I don’t advocate it to be done in a jiffy, right? In fact, a better bargain, if our politicians can drive this, is in my judgment, all these subsidies, agricultural subsidies put together is something close to about seven and a half lakh crore or about eight lakh crore, right?

The agricultural land which is cultivated is about 1.25 million hectares or so. If you divide that, you find that on an average, the government gives in the form of all these subsidies, something close to 60 to 70,000 rupees per hectare. 60 to 70,000 per hectare is my challenge.

Hardly five percent of the farmers in India would be earning by doing everything in the agriculture. So if we can actually change the terms and say that the government will give you this 60, 70,000 rupees per hectare, you will do two things. Number one, you will not have any subsidies.

So you choose to grow what works for you, right? What works from the market. So if milk farming or the animal husbandry works for you or silk production works for you or cotton or whatever or oilseed or pulses or coarse grain, millets, whatever works for you or wheat and rice, whatever works for you, you do it, right?

And use that money because you will be able to sell your output in market and make some money on the crop and use this support from the government to skill yourself, your sons, daughters into capturing the opportunity into other services, manufacturing, wherever you can. You train them, educate them by using this money. And this money should be available to you for at least about 10 years.

And that is how you make the transition. I think then we can have a very sensible transaction and relatively painless transition in my judgment. But that would require enormous amount of hard work, persuasion.

India is a very big country. It has very bright minds. We are argumentative as well.

We have so much opposition, bickering, confrontation. But if something sensible is to be done, that is the kind of thing which is required to be done.

Siddhartha Ahluwalia 36:45

You explained the calculation of GDP very nicely by a potato chips example. I want to share it with the audience.

Subhash Garg 36:53

No, I think you can do it with anyone. So this is basically to make our readers understand what we call the value chain. So when you sort of grow potato, a farmer grows potato, for example.

Now you can use potato for your sort of vegetable and then it gets consumed without further value addition. But if you sell it to a guy who can convert into chips, then it undergoes certain processes. And in that process, there is a value addition.

And then that chip with the addition of spices or otherwise nicely marketed reaches to the same household which otherwise consumes the potato as a vegetable. It satisfies that. But look at the difference between the price of a potato and the potato chip.

It might be of the order of 10 times. So at every stage, you do value addition. And what is more important is if the price is 10 times, then the same consumer sort of pays 10 times and still feels satisfied.

That process generates income for whoever was participating in that chain. The farmer might be able to get a more price for its potato because that potato would be somewhat more special, variety, better taken care of and all. Then in the process, when it goes transformation, there will be people involved in sort of cooking it, heating it up, cutting it, and the machine makers and others, and then the packers and others, transporters and all.

So everyone would be better off by earning. So in fact, that 10 times it gets divided between the people who are producers, the labor, the company which makes profit, and the government which earns taxes. So in that value addition chains, many times you would be hearing this argument in our country that the farmers are looted, they get for the papaya or for the apple they produce, they get only 10% or 20% or 30% of the final price which is paid.

This is a very short-sighted argument. And this flows from what I earlier said, this Annadata kind of syndrome. The final value which the consumer pays for a chip in this case, or a raw potato in that case, or an apple which is delivered at its home, or the apple which the farmer delivers at his farm.

There is a world of a difference. The consumer here is not consuming the apple at the farm of the farmer. The apple which is sold undergoes a lot of washing, treatment, then storage in ways where it doesn’t deteriorate for months, then it’s getting transported here, the guys who are vendors, then they would get it to your home.

So a lot of people are also doing value addition. So we should not decry the value addition contribution of the people in the chain to make the farmer sort of categorized as that poor guy, exploited one. No.

He added that much value only. If he thinks that there is a better value addition in storage, processing, transportation, that farmer, what we discussed earlier, should switch to that job rather than crying or feeling victimized and things like that. And the politician trying to exploit the sentiment that, oh, because the middleman, you are exploited, we will deal with middlemen, we’ll finish them.

That’s nonsense.

Siddhartha Ahluwalia 41:56

I can relate to that example. Let’s say a price of retail potato, if you buy it raw, would be 50 rupees per kg. And a farmer, I assume, would be getting for it 10 to 15 rupees, because in between what you said, the distribution and the logistics part of it.

But similarly, a chips of potato would for 30 or 40 gram would cost 20 rupees. If you multiply that by kilo 25 times, 20 into 25 is 500 rupees. That’s 10 times, 50 to 500.

Exactly 10 times. And a farmer at least would be able to capture in the later part, 10% of the value again.

Subhash Garg 42:41

That’s correct. So it happens. And this is the way the distribution changes.

You see, making something available to the consumer at its home is also a very important value addition. Why does international trade take place? The international trade takes place because the people where something is produced, but there is not enough demand, and therefore, it’s less produced.

By sort of creating markets somewhere else, far away, in fact, the trader is helping the income of that farmer grow by increasing its market. So trader, manufacturer, servicer, mandi guy, the vendor out in your maula, all of them are doing valuable function. This is not in the interest of farmer to kill or get the middleman out.

If the middleman gets out, the farmer’s market will shrunk. The many times you would find the instances where a farmer is throwing away the tomatoes and onions because they’re getting 2 rupees or 5 rupees, which is not covering. Why does that happen?

Because demand supply situation has got created adversely. There is more supply than demand. And can the farmer manage the demand?

Siddhartha Ahluwalia 44:27

And there is another very interesting example, which you said that India’s manufacturing sector refuses to leapfrog. Can you put more light on that?

Subhash Garg 44:44

See, the manufacturing sector, for certain reasons, is not sort of investing in the high technology and investment into taking further risk. One of the reasons is that India’s still we have a very dominant, powerful public sector. That public sector invests, look at railways, for example.

So the government invest lakhs of crores of rupees in building railways, doing other capital expenditure and all. But what is happening, still the railways doesn’t have more passengers. The railways do not provide services.

You still see India’s, not only the rails getting overcrowded, go to the stations, you’ll find many of those stations where people are sleeping, sitting. What kind of situation we have. The biggest reason why, besides the fact that still the government is in a big way into the industry, is that we have not been actually innovating much.

We have not been able to create technology. All the technologies are mostly created abroad. We at some stage decide to buy, but many times we take a very long time to take decisions to even buy the technologies.

For example, look at the semiconductors, which is all involved outside. Look at the solar cells and the modules, it is all involved outside. We don’t have, most of our automobiles and other machinery are involved outside.

In services now, many of the services get innovated. First AI is the latest example, but even look at our shows, even most of them are franchised version or whatever happened outside. All these reasons, since we are not a great innovator and the technology producer, we can make progress only by what the Chinese and the Koreans did in the initial phase.

That was that, all right, get the technology and the machines from abroad and then learn them, reverse engineer and cover with a better one. We have not been successful in doing that. That is why our industrial production, this might surprise you, but in Modi 2.0, the industrial growth has been less than 4% for 5 years. Industrialization has not progressed very well.

Siddhartha Ahluwalia 48:20

In spite of a great narrative and PLI schemes happening?

Subhash Garg 48:25

I have described this PLI experience in a big way in this book. The idea of PLI was sensible. I did have some involvement in it when I was in the government.

It was the telecom, basically the mobile manufacturing. The market suggested to us that globally 80 to 85% of the mobile production was made by five companies in the world. And they are not making them largely in the countries of their own residence, but they have gone to China, Vietnam and many other countries to get them made.

The conversation with them told us that this is very simple. If they can make a little more money than what they are doing elsewhere, they have no problem in shifting here. So that is how the PLI on telecom was born in a way, that the difference for 5% of the sales value, if that is compensated, they will shift.

We have a good case if Apple has substantially shifted the production to India. But that kind of neat understanding is not reflected in other PLIs. That has become more generalized like what happens in most of our schemes.

You have a PLI on textile, you have a PLI on air conditioners. These are non-high technology products. The companies don’t come here to produce these things or Indian investors don’t do it and they prefer some to import because manufacturing in India in general is not cost effective.

But in some of the other ones, for example, solar PLI or the batteries PLI or the automobiles EV PLI, you can get the investment by foreigners who have the technology by and large to make it in India if they find that the proposition offered to them is where they can make a little more money than elsewhere. Here there is one more problem. We have sensitivities towards Chinese.

So we don’t prefer BYD to come and make EVs here. We want Tesla to come. But if Tesla doesn’t find the proposition good enough, it doesn’t come.

And in the process, we don’t find anyone coming. Right. And the domestic don’t have.

So while Tata Motors and others may make a lot of effort to make move and based on large imported elements in any case, the PLI doesn’t succeed. So as a result, despite four years of the PLI, the foreign PLIs in total dispersed only about less than 5% of the incentives in this period. Now, incentive dispersal is an indication that PLI’s objective is achieved or not.

If the production has taken place, export has taken place, investment has taken place, then you disperse. If you’re not dispersed, it is safer to assume that the objective has not been achieved. And therefore, PLI, to my mind, have grossly underperformed.

Siddhartha Ahluwalia 52:56

And one of the things that you also mentioned is services have grown without any policy support in India.

Subhash Garg 53:05

I wouldn’t say any policy support, but there is hardly any policy support. This is for two reasons to my mind. Number one, services were not known largely at the time when our constitution was made and the political formation started thinking about how to deal with policy barring some model, some movie and some other services.

Services were not a recognized kind of economic activity. So much so that we did not have a services tax. It was in 1994-95, for the first time, that the government brought in services tax and they did it on three services, including the telephone billing, which was at that time.

Now, of course, over the years, the goods and services tax covers almost all the services except some exempted one. So services have been outside the pale of formal government interference or intervention. The other factor which was probably responsible for this is that unlike factories where large number of labor come and work under circumstances or situations where there is perhaps some adverse impact on their health and well-being, services are not large industry until some time now.

Now, services establishments have also become very, very large and services are more distributed personal kind of thing. That was also a reason why services were not considered too risky to regulate. So there were many labor laws, but they’re not labor laws on services.

But finally, what made the difference is that when technological evolution took place and some guys thought that with the information technology sort of enabling services to be delivered at a distance, you can offshore, you can have this BPO type of services. That is when the services is a big way started coming to India. And since there was nothing, no factory act applied, no labor laws applied, nothing of that applied.

All that they required were number one, give us some electricity connection. Second, don’t interfere us too much. And one more, that for our export, because you also want export, we are also exporting.

So for our exports, give us some tax concessions. I think it was a very sensible thing for the government to come up with solutions where exports of services, IT services were in a way exempted for many years and the services export took off. IT exports, we have something close to 35, 40% of the information technology export share in the country.

That has saved us quite a lot. We export about 150 and $60 billion worth of services, IT services today also that helps us pay for our import bills to a great extent. So I think this concordance of circumstances allowed the services to grow without much regulation, interference by the government.

And since these are all commercial in nature, that you were taking the work which is paying you many times more than your cost, that is where the profits come. They did not need any government support like what agriculture requires or what industry asks for all the time. So services were not dependent on the government support for profitability and income, and services were not regulated or interfered with by the government in that sense.

I think that allowed, in my judgment, for services to grow much more than what they would have or what our industry and other segments of the economy have faced.

Siddhartha Ahluwalia 58:15

And India could never imagine, at least the government, that India would become the hub of IT services for the world.

Subhash Garg 58:24

Yes, many of these things start very small. When that 2YK thing came and some people thinking that Indians are brainy guys, they can be used to fix this problem. I don’t think anybody would have imagined at that time that this will grow to that extent.

That is why it’s very important not to plan. You can’t plan for what you don’t know. But what you can do is to adopt the right kind of policy and take the right kind of step to get to that.

Today, the big opportunity lies in the distal economy, the environmental economy and things like that. Services, I said, we should take the right kind of steps rather than plan for it. You can’t plan for 2047.

There’s no point in doing. The world may undergo substantial change in the meantime. What you do is that agriculture cannot hold, cannot provide good incomes.

People need to move. Where should they move? Instead of taking them to manufacturing, which is not having, except some part of it, take them to infrastructure, take them to services, nudge them towards that and adopt policies and reforms which make that happen.

People will themselves do it.

Siddhartha Ahluwalia 1:00:00

So that’s why you say that the services industry grew because the government didn’t make policies for it. If it would have made policies, we wouldn’t have grown to where we are today, especially in IT services. So we grew despite of government.

Subhash Garg 1:00:18

See, not making a policy is also making a policy. Not interfering in any sector is also a policy. So that is what we should understand, where we should make a policy or where we should leave it.

Much of the private enterprise should honestly be left to it to compete its way out in the free market. You should not be intervening. However, wherever there are risks associated with it hurting people or on the well-being of the labor involved, the safety issues, the environmental issues connected.

Suppose you emit pollution. That is where the regulation should be for safeguarding the people, the environment, the labor from the excesses which the industry might do, but not in what you would do that you will come at nine o’clock, you will record your attendance in this way, you can only have this kind of machine, not the other machine. That is not something, or you should have only this much capacity, which we used to do for many years earlier. I think leave it all, free them all, only those aspects which affect the people and the environment.

Those are something which need to be sort of taken care, the rest can be left.

Siddhartha Ahluwalia 1:01:55

You have an interesting view on brain drain, right? You say that the more brain drain happens to India, the faster we will reach to the 10 trillion economy mark. Why is that?

Subhash Garg 1:02:10

See, India has something close to 18% of the global population. We have 1.4 billion people. That’s a very large number of people.

We are too many, in fact, if you put it. What does the brain drain mean? The brain drain normally is explained as some talented brainy guy going out from India, settling somewhere else, doing the work, industry, professorship, whatever abroad.

And the underlying logic is that if that brainy guy who is serving the interest abroad very well, if he had stayed here, then he would have served India’s interest also very well. India would have grown, would have prospered, would have benefited if he had stayed. This is the train of logic and that is why when somebody goes, it’s a brain drain, it’s bad for the country, it should not happen.

That’s the, my view is entirely different. My sense is that the one guy who has gone out, we have hundreds of guys in India with same brain quality. Sometimes you might be actually surprised to know that the guy who is left out in the country is a more brainy guy than the one who has gone out.

It’s only the better opportunities, better ecosystem which allowed him to flourish or her to flourish there and the brainy guy here not to deliver his potential here. So I don’t think the so-called brain drain affects us adversely. In fact, if you look at the kind of contribution which has come from them, last year we received in foreign remittances close to about 120 billion dollars.

What is our FDI receipts? Our FDI receipts, the net new inflows on average are only about 30-35 billion dollars. The rest of the FDI is reinvested, etc.

But the fresh inflows are only this much. So the guys who are abroad are actually sending four times of what the entire FDI which is coming up here. And FDI might actually take the profits later, but this remittance which has come is going to fund the consumption investment in the country.

So this would not have been possible if these guys had not gone out. So I don’t think we should view the so-called brain drain as negative to us. We should rather, if we can, multiply this brain drain many times over if you can increase the speed of this brain drain by 5-10 times, believe me, India would be a prosperous country.

For everyone which goes there, whatever it contributes, 3-5% health, consumption standards improve in the countries. So don’t worry about brain drain. This is something, in fact, our entire services contribution to the world is based on the people moving out or people delivering the services.

Our exports in services are the faster growing than our goods exports which are not growing much. And the fact, if what people have gone from here and they have captured 20% of the CEO’s position in America, believe me, the guys who are staying here, if they get the similar opportunities, they can create many times better and richer companies in the country rather than, and that would be far more beneficial to us. In fact, we should compare how can we create a system that one guy goes out, 5 times the guys in India perform better.

That should be the test rather than reviewing the fact that someone has gone.

Siddhartha Ahluwalia 1:07:25

And what about the fact of millionaire migration from India that people who are dollar millionaires in India are now seeking residencies abroad, few reasons, better standard of living, lesser taxes.

Subhash Garg 1:07:40

See, that is a little ironical. I would assume that the millionaires have made some money in India, though many of them have actually made money by exporting things as well. So at some stage, I think there are two factors which are at work.

At some stage, when they have accumulated enough of income and they feel that the opportunities in the country for further advancement or further multiplication by doing the business in an honest way. We have many millionaires and billionaires who are doing well in the country, but there is a kind of feeling, I’m not saying this is 100% true, there is a feeling that they make their millions and billions by doing something which is not desirable. So if they feel that they can make money outside by doing legitimate things, for example, just take, it may not be a very popular thing, but the way we dealt with cryptocurrency, the way we dealt with gaming, these guys who are making money here by changing law, the reporting requirement, compliance requirements, etc.

They can no longer sort of increase or grow their businesses in the country. So they decide to go out. That’s one reason why perhaps they think that it’s time for them to move out and do have better prospects if they move out.

The second one is what you hinted in a way, is that the standard of living. We have enclaves here where people can live a very good standard of life, but we have still large problems. For example, look at Delhi in winters when the pollution levels rise so massively.

Look at the congestion in our roads and things like that. If there is a feeling that the quality of life which their millions can afford very well here or elsewhere, then they might decide that for better quality of life, let us move out. So I think both things we can address.

Like we discussed about the individuals, these can also be addressed. Can we take a more positive, futuristic view about the emerging technologies and businesses? Can we invest much more of the public money into taking care of pollution, environment and all and make the quality of life better here?

So I think if we do that and if the people find that their standard of life is equally good, if not better in India, I don’t think they would. No one likes to leave his own home, people and country unless that person believes that you can do better business, earn more and live better abroad.

Siddhartha Ahluwalia 1:11:49

In our offline discussions, you mentioned that the Hindenburg did a service to India.

Subhash Garg 1:11:56

I wrote a piece in the Quint a couple of days, two, three days back after the second Hindenburg report had come. And my sense is that the short sellers render valuable services. They make or they prick the balloons which are artificially inflated or based on market manipulation and things like.

So short sellers, and they also risk their capital, if their analysis is not believed by the market and there is no over sort of inflation or inflated thing, whatever they sold, they invested in short sailing will be lost. And therefore, we should respect the short sellers. We should take, we should deal with that as a market mechanism, market phenomenon, rather than linking it with some sort of nationalism or emotionalism, etc.

Siddhartha Ahluwalia 1:13:08

So when is the book releasing?

Subhash Garg 1:13:11

This book is currently in the final editing phase. And my expectation is that in September, they would put out for pre bookings. And by the middle of October, this should be certainly available.

Siddhartha Ahluwalia 1:13:29

I’m looking forward to book my copy of India, 10 Trillion Economy Dented.

Subhash Garg 1:13:34

Thank you. I hope you will enjoy.

Siddhartha Ahluwalia 1:13:36

I enjoyed the first book and looking forward, I gained so much, you know, perspective from reading the first book. I’m hoping to gain.

Subhash Garg 1:13:43

Thank you very much Siddhartha. All the best to you.

Siddhartha Ahluwalia 1:13:46

Thank you so much, sir. It’s been a pleasure.

Subhash Garg 1:13:48

Thank You!