Siddhartha Ahluwalia

Hi, this is Siddhartha Ahluwalia, your host of Neon Show. Today I have with me Sanjeev Sanyal, member of Economic Advisory Council to Prime Minister. He’s a person who’s responsible for several reforms in India, including the banking reforms.

You love him as an economist. He’s one of the most respected economists of India. He’s the one responsible for the number of patents going in a year from 10,000 patents six years ago to 1 lakh patents now, 100,000 patents by India in a year. Welcome Sanjeev Sanyal to Neon Show for the third time. So glad to host you again.

And I’m keen to discuss, you know, the processes that you have implemented, the reform that you have done, including the banking cleanup, including the G20 action plan that kept the world going in terms of financial crisis, supply chain crisis during the COVID years of 2022. So welcome on the show.

I want to touch upon a very important of, you know, policy reforms, right? And process reforms. Elon Musk recently said that he is trying to establish an organization or a government body within the US that will take care of cutting down all the departments. And you are doing the same within India for the last half a decade. Tell us more about that.

Sanjeev Sanyal

So pleasure to be back on the show, you see, people always love large structural reforms. And I’m not saying they are not needed. You need these big reforms, you know, replace our indirect tax system with GST. Or you replace our creative destruction system and upgrade it with an insolvency and bankruptcy code. Or you change our, you know, the way our inflation is managed with an inflation targeting mechanism, and so on and so forth.

So there are these big structural reforms which change the structure of whatever activity it is that you are trying to reform. But I have been advocating now, and I’m now winning some converts globally as well, that, you know, many of the reforms that we need to do are not changing the structure.

The given structure can be made to work radically better. And that requires us to do process reforms. i.e., making the process of whatever it is you are doing, better. So, I mean, remember the way it is to take ages to get passports? Now, it’s not like we haven’t got rid of passports, it’s just the process of getting it has been cleaned up. Now, I didn’t, I’m not responsible for it, so I’m just clarifying, but this is a type of process reform.

My contribution is really to begin to think of process reforms as a standardized institutional activity, i.e. this is not something we do as an exception, but we do it as a part of what governments do routinely.

So you look for where in the process of any activity that the government does, can we smoothen out the same process, we’re still doing the same thing, right, and we smoothen it out.

And, you know, or there may be a department that is now outlived its utility, can we shut it down or merge it with something else. So cleaning up, so to speak, the government, and this is something every large organization does routinely.

So if you, if you’ve done an MBA, you will probably be taught business process re-engineering as a routine part of what companies are supposed to do. But for some reason, there is almost no literature on doing this for governments…

Siddhartha Ahluwalia

Globally…

Sanjeev Sanyal

Globally, and this is not an India problem, globally. I mean, you go to the European Union, and I can tell you dozens of ridiculous processes and requirements that European countries today require, need, which is choking their systems.

Same thing is happening in the US. You mentioned Elon Musk, one of the promises made by the Trump campaign is that Elon Musk will be the guy who will clean it up. Whether or not he does it is a different matter.

But I’m just pointing out to you, there is now recognition that this is a serious issue.

But in India, we have now been doing it for some time, small reforms, small opening up, but accumulatively, they add up to a lot. In fact, some of these small reforms can by themselves be very, very big, the impact of it can be very big.

Siddhartha Ahluwalia

For example, the banking clean up that you did, right, it caused a major overhaul in the banking system. And now Indian banking system is considered one of the most robust system.

Sanjeev Sanyal

But that was actually, I would not count it as a process reform, that is actually a structural reform. Ok. Because basically, what we did was we, we had a banking system with huge piles of NPAs.

The conventional wisdom in 2017-18 was let’s create a bad bank, put them all into this warehouse and then recapitalize the banks and keep lending without actually changing anything.

Here, we actually did something that was a structural change, which is we used a new law called the Insolvency and Bankruptcy Code. And we bankrupted large companies, right, like Essar Steel and so on.

And eventually, we also during COVID, we even did jet airways, so large companies. So now, historically, we would not…would have thought of that as a bad thing. Oh, my God, we’re going to bankrupt a company, so many jobs are lost.

No, actually, what happens is that somebody else buys those assets, because they are good assets. And in fact, they hire back many of those people very often, because they turn those companies around and create more employment.

So this creative destruction process, same thing, you know, it’s not like our airline industry died, because Jet Airways shut down before that, in fact, jet airways itself was the beneficiary of many other, you know, East West, Damania, Kingfisher, you know, were bankrupted along the way.

So there was nothing very special about Jet Airways. They died along the way, new companies have emerged, and more will emerge into the future. So this creative destruction, but this, I would argue, is a structural reform.

It changed the way we thought about how innovation and risk taking and creative destruction happens. That is distinct from, say, another change, and a parallel change where, you know, this was shutting down of companies, which are bankrupt and insolvent.

But let me talk about companies that have not gone bankrupt, they just want to shut down for a variety of reasons.

In fact, 80 to 90% of companies worldwide that want to shut down have not gone bankrupt.

There’s just the owner has grown old, his kids don’t want to do that business, they want to shut it down, or, you know, the industry has changed, or, you know, there is a large company which had a subsidiary just wants to shut it down, whatever reason, some perfectly mundane reason for shutting it down.

And yet, shutting down an Indian company used to take years.

You had to get permissions from all kinds of a labour ministry, tax, falana dhimkana, you had to get permissions to shut it down. Now nobody’s objecting to them being shutdown. It’s just that the process was so, so cumbersome.

And then ultimately, you had to go and, after getting all the NOCs, you had to then go and get and convince the Registrar of Companies to advertise your name in order to finally shut it down.

And you can imagine in various steps, there was rent seeking along the way. So, about a year ago, in May of 2023, a new web system, online system was created called C-PACE.

Now, what happens is that if I am a person who is shutting down a company voluntarily, remember, this is all for voluntary shutdown of companies, this is not bankrupt companies.

I want to shut it down, I’m sick of doing whatever it was doing, I just want to shut it down. I just upload my stuff onto the system. The system doesn’t go in sequence, earlier it used to go sequentially asking for NOCs, it asked for them parallelly.

And if in 21 odd days, if nobody has objected, none of the departments have objected, then it automatically generates a no objection certificate. Okay.

Now, as I told you, these are voluntary shutdowns. In vast majority of cases, nobody has any problem with it. They have paid their dues, paid their employees, everything.

So very, very rarely does an NOC pop up. Most times, nothing happens. Then the system itself generates a list that the registrar of companies has to advertise.

So that registrar of company advertisement comes out, and the company is shut down. So it now takes just 90 days, it’s one of the fastest in the world, if not the fastest in the world for shutting down a company.

Siddhartha Ahluwalia

And for our listeners, what’s this website where people have to go to see this?

Sanjeev Sanyal

C-PACE. You can Google it up. There are two ways of shutting down company in India. One is I told you the IBC route.

Most of that, most of it is to do with bankrupt companies, although some volunteer, some voluntary ones also go there. But most of the companies are shut down under something called Company Law. And C-PACE is the place to go for it.

Siddhartha Ahluwalia

And you build the entire policy and the infra to make this happen.

Sanjeev Sanyal

No, not me personally only. I mean, be very clear, there are many people involved in each one of these reforms. I conceptualized the problem, figured out where in this entire chain, the blocks were.

As I said, when you sort of map the process, you very often find that 80% of the problem or 90% of the problem is 10% or 20% of the process. So you don’t actually have to throw everything baby out of the bathwater. You only have to fix the… where most of the delays are.

So about two years ago, or three years ago, when I was still in finance ministry, a presentation was made to Nirmalaji and her team, which included the secretary or then secretary of the corporate affairs.

And, you know, the problem was put out, clearly marking where the problem was, and then through various iterations. So here the Ministry of Corporate Affairs officials themselves worked it out, and the system works.

So I think what I’m trying to say here is that many of these things can be cleaned up. The people there are also willing to do it, but it requires for us to think of process reforms in a systematic way.

Siddhartha Ahluwalia

To dedicate 10% of X amount of bandwidth…

Sanjeev Sanyal

to this. And there are hundreds of these things to be done. So once you create an… So what I’m attempting to do is not necessarily just solving problems on my own, some of them I will, but really to institutionalize this idea of process reforms.

Every single ministry, every single department, every single autonomous body can improve. Just look at what it does. If there is a queue in front of a government office, somebody with a stopwatch has to stand there and just click.

How much time are you taking for doing whatever it is you are doing? And you’ll be surprised that you can simplify that process radically. And very often you’ll find that almost all of it works very well, because except one 10% of something, which is very often the most irrelevant step in the thing, is the bit that jams up the whole system. So that is basically a process approach to this.

Siddhartha Ahluwalia

And tell us about, there are 850 government departments, central government departments.

Sanjeev Sanyal

No, 850 autonomous bodies.

Siddhartha Ahluwalia

Autonomous bodies. And now you are working on shutting the obsolete ones, which are not required.

Sanjeev Sanyal

Yes, so there are 840 odd autonomous bodies of various descriptions. I’m not talking about ministries or departments, these are autonomous bodies. Now it’s not the case that all of them are irrelevant, there are some which are clearly relevant, you have SEBI or Reserve Bank of India, there are large numbers of research institutions there.

So one is to get those institutions to do better, that’s one part. But there are many that were built for some reason at some point in time and are now obsolete. So some effort has to be now done to shutting them down, sometimes merging them and so on and so forth.

So there has to now be a thought about this. So the good news is that in the last five years, this government has been putting in an effort to begin to do this. And several have been done.

We used to have, for example, railways used to have hundreds of training institutes, hundreds. Now they have been reduced, you know, maybe to a third of what they were 10 years ago. Okay, so just consolidation.

Similarly, you know, there was an institution called the Tariff Commission. So the Tariff Commission, as it happens to be, didn’t play any major role in actually setting the country’s tariffs. It was a legacy institution from the pre-liberalization era that had just hung around and sort of got kind of sort of forgotten.

And then finally in 2022, it was shut down. Has it really caused some difficulties in the way we set customs tariffs? No.

At least nobody has noticed. And there are many other things, even in lists of things people have, which governments are doing. So I’ll give you one example.

Monuments of national importance. Okay. So like any country, we have a list of monuments that we as a country think are, you know, these are nationally protected monuments.

If you go to some of these places, you will see that blue board, which basically threatens you with all kinds of things if you do, if you damage them. So fair enough, you know, like any, any country, we should have these national monuments. The question is, what is there in that list?

And unfortunately, since independence, we have not really looked at that list. What we did, what happened is, we inherited a bunch of the list from the British. Then after we consolidated the princely states into the thing, we added those princely states had some nationally important, their nationally important monuments.

So they added them to that. Then along the way, some thing or the other, a few more got added along the way. So we ended up with something like 3,700 national monuments.

Nobody sat down and looked at whether or not they were sensible. So what has happened, even today, 77 years after independence, many of the national monuments we have are completely, you know, it’s crazy, some of them are national monuments.

So there are, for example, graves of colonial era, obscure, not even important ones, obscure colonial era officers, which are considered national monuments.

Siddhartha Ahluwalia

That is so bizarre.

Sanjeev Sanyal

Yes, some of them are not even in faraway places. If you, you know, in Delhi, there is the grave and a statue of a colonial era officer, who was responsible for the sacking of Delhi in 1858, after the rebellion, and carrying out large massacres.

Okay, now, this statue was set up by the British, obviously, as they were grateful to him for, you know, putting down the 1857-58 Great Rebellion, I understand why they would put it up. I understand why they would turn it into a national monument. His grave also, which is also in Kashmiri Gate area, that is also considered a national monument.

Now, to tell you how bizarre the story is, we become independent. About 20 years after independence, 1960s somewhere, the hometown of this official asked for his statue to be sent to them, because they wanted to do some sort of a commemoration of him, but for them, he’s a hero. So his statue went up to North, to Northern Ireland.

But, we did not delist it here. So the place where that statue used to be, it’s not even the statue, the place where the statue used to be, continued to be a national monument, till two months ago. Ok. His grave, which is in Kashmiri, near Kashmiri Gate, just opposite the Kashmiri Gate Metro stop, is still a national monument. We are now looking to delist it.

But I’m just giving you how this is, that nobody even went and looked at our national monument’s list. And it’s full of strange things. Similarly, there were a few dozen national monuments, which have gone missing.

We don’t even know where they are. And nobody has seen them in 20-30 years, or more, maybe for 50 years. So some of these, even going back to the 1970s, when Parliament had raised the issue, where are these monuments, and ASI, nobody knows where they are.

So at least delist them and clean up that list, no? And maybe there are many good things, new things we can add to it. It’s not like…So the point is, this is not a structural reform. This is ongoing, this should be ongoing process reforms.

Siddhartha Ahluwalia

We worship Shiva, the destroyer, but we don’t take up the role of it.

Sanjeev Sanyal

Absolutely. So the role of Shiva, the destroyer, is an important part. So, you know, that’s why I keep saying…

Siddhartha Ahluwalia

Thank you for taking that up.

Sanjeev Sanyal

Creative destruction is an extremely important part. Similarly, there are, you know, bodies like Children’s Film Society. You know, remember that jingle from the 80s and 90s, hum ek something, what was it? Ek chadiya, anek chadiya, you remember? Many of us have grown up listening to it, being deeply annoyed by it.

But it came from this institution called the Children’s Film Society. It is a defunct organization for decades. I mean, that particular jingle was perhaps the last thing it did, which anybody would have noticed.

But it was still around, till very, very recently, last two years ago, it’s finally been merged into one entity. There were several such entities, which the Information and Broadcasting Ministry had. It’s been merged into one large one, and sort of has been cleaned up.

So there are simply hundreds of these in the country. I talked about the central government once. Every state government also has these.

Siddhartha Ahluwalia

I’m glad you are taking up as a mandate on yourself in Centre, but I’m astounded that if this percolates to state level, how much impact we can have.

Sanjeev Sanyal

Absolutely. You know, for example, the lists of things that the average district magistrate is supposed to do. You’ll be amazed that the average district magistrate is the chairman of literally dozens of institutions.

Now that person is going to be there for 18 months, if you’re lucky for two years. Most DMs are there in 18 months. So most of these DMs have never actually chaired a meeting of any of, or a very small proportion of the many bodies that they are supposed to be chairman of. It’s not humanly possible. It’s not blaming anybody. It’s not humanly possible.

We need to clean up that list. Just putting him chairman of every single thing does not solve any problem if that person is simply not humanly possible. Every temple trust, every government scheme, central, state, local, everything, DM is the chairman.

Now, how do you expect that? And it’s usually a young man or woman in his early thirties, you know, does not even have a chance of actually holding a meeting.

So those activities all fester. Monies are very often given to those things. They’re obviously, there’s nobody keeping track of them. Even if the officials who are running it are conscientious, there’s no guidance.

So you have vast amounts of these kinds of organizations and things just floating around. Nobody paying attention to them.

Siddhartha Ahluwalia

So there is chaos in the ecosystem or in the system because of unpaid attention to what needs to expire.

Sanjeev Sanyal

Absolutely. And cleaning up the system and just looking at what are the processes. I mean, the process, by the way, the bureaucracy, while, you know, it’s blamed for much of this and they should be, is itself the victim of many of these things.

Siddhartha Ahluwalia

How is that?

Sanjeev Sanyal

Well, you know, if you, if, say you are an official, you have to send officials for negotiating trade deals or many things, government officials have to travel abroad, a reasonable thing to do. Now, ask any government official the number of hoops they have to jump through to get a very standard.

It’s not an emergency, it’s standard, well advertised event. Let’s say six months from now, there is a trade negotiation that will be done or some negotiation we are doing, some global treaty we are signing. There is some joint secretary who has to go and sign it, right?

Or negotiate it. Now six months ahead, we know he has to go there. Now, the processes are such that it’s not unusual that till the afternoon of the day in which he or she is supposed to catch the flight, those processes are still being desperately forms are being filled out.

Now, can you imagine how disconcerting this is? And very often it doesn’t get done for that person.

So a team of two is going, one of them goes, the other person who may be the more knowledgeable of the two is unable to catch the flight or it gets cancelled last minute because those… Now, who created that template of systems?

Now it’s not improving the control of the system, mind you. I agree that, you know, there should be some controls on officials flying abroad and who they are dealing with, etc. But this is nothing to do with that.

This is just a series of inane permissions that are needed very often which have nothing to do with anything. And they can easily be done well in time.

Siddhartha Ahluwalia

And this is getting changed right now?

Sanjeev Sanyal

Yes. So each step, by the way, I mean, I complain about these kinds of things and then some of the old timers say you have no idea what it was a decade ago. So this is the improved situation.

But you know, you need to keep improving them. And just like we are improving on one side, we are also adding something somewhere for some reason somewhere else. So you know, there is always new frictions that are added.

We need to be, pay attention to those frictions and make sure that, you know, we account for the friction we add. Now it may be, it is a good thing to do, you know, but some cost benefit analysis has to be done. You know, otherwise everybody has the ability to insert a friction. Nobody has the right or obligation or duty to go in there and remove the friction.

Siddhartha Ahluwalia

We are going to discuss your paper, you know, that you have published recently, Relative Economic Performance of Indian States from 1960 to 2023-2024. First of all, what was the intention of publishing this paper? What change do you want to have through this?

Sanjeev Sanyal

Well, the paper that you’re referring to is about the relative performance of Indian states going back to 1960-61, which is the earliest proper data set we have till basically till today, till 2023-2024 data that we have. And the idea was to basically show over this very long period of time of six and a half decades, how different states have done on two parameters.

One is their share of national GDP, national economy, and their per capita income level as a proportion of the national average. So we have stripped out of it, you know, overall growth and absolute growth and looking at their relative performances.

So that, you know, we have a sense of what local or rather state level policies, how they affect overall story, and what are the regional disparities, and so on and so forth.

So it, you know, so I thought, first of all, a lot of the work there is not so much analyzing the data, which we can also discuss, but simply to present the data that this is what the hard data says. It’s a different matter, different people may interpret it in different ways.

Siddhartha Ahluwalia

And there have been some stark revelations through this data, right? For the first, you know, when we started measuring this through 1960s, Uttar Pradesh was the state contributing 14%, and today it contributes around 8%, you know, after 60 years. What according to you led to the decline?

And I’m also come on to the other states like, you know, we discussed in a previous episode, West Bengal, Bihar is a very surprising contributed in 1960, 10% of the overall GDP of India, today it contributes around 5%.

Sanjeev Sanyal

So, the first important thing you need to realize that, of course, in 1960, we were an agricultural economy, heavily agricultural.

And Uttar Pradesh, remember, that was undivided Uttar Pradesh, it was the single largest state economy in the country, followed by Maharashtra. And then West Bengal was number three.

So these were, you know, this was the driving force of that time. But do remember, Uttar Pradesh also had some rising industrial hubs even at that time, like Kanpur, known as the Manchester of the East, and so on and so forth. So it wasn’t purely agricultural, but nevertheless, largest state, largest population, you know, huge fertile lands.

So yes, Uttar Pradesh was then the largest economy in the country. And then in over the next subsequent few decades, and it starts right in the 60s, 70s, you can clearly see its share steadily decline all the way through to 2010 or thereabouts. Then, you know, we can debate what the reasons are, that’s what I don’t get into the paper itself.

But of course, you know, several things would matter. One of them is, of course, long periods when it had a reputation for being lawless, so not enough investments. It didn’t manage to either grow new industrial hubs, or even take the existing ones like Kanpur to move up the value chain.

But it’s, but you can even see the flip side of it in very recent data, when you do manage to do the opposite, how it works.

So if you do improve law and order, if you do begin to bring up, say, Noida now is an industrial hub, you are beginning to see for the first time, Uttar Pradesh first stabilize and then even see a small increase in very recent years in share in GDP, or even its per capita income as proportion of the national income.

So it can be done, there’s nothing intrinsic that Uttar Pradesh should underperform. But yeah, that’s, you know, decades of local policies that didn’t encourage, you know, investment.

Siddhartha Ahluwalia

And is it fair to summarize that all the states that kept agriculture as their main forte, Uttar Pradesh, you know, Punjab saw the decline over the 60 year period?

Sanjeev Sanyal

Well, yeah, yes, I mean, in the sense that, in the end, if you want sustained high growth, you will have to industrialize, urbanize, and build services and construction and other sectors.

Agriculture can only grow, even if it’s in good times, it can only go at a certain pace. Now, there were periods where certain states did do very well for some time, based purely on agriculture, and Punjab is a good case of that.

It did very, very well during the Green Revolution period of the 1960s, even into the 70s. And then it stagnated. Again, my paper doesn’t get into why it stagnates.

But one of the things I mentioned there is maybe we should investigate whether or not it suffered a Dutch disease problem.

So what is the Dutch disease problem? The Dutch disease problem is, supposing there is an economy that is doing spectacularly well in one sector, what happens is that the other parts of the economy can then just relax because one sector is doing very well.

And then what it does is skews the whole system. So that supposing there’s a shock to that one sector, or you reach the limits of growth from that sector, you are unable to move to the next, you kind of become a prisoner of your own success.

And Punjab seems to be one of the places where it’s a prisoner of its own success, in that it does well in agriculture, its per capita income by early 70s is well above the national average, and then it stagnates.

And this happens to such an extent that today, Punjab’s per capita income is just barely above the national average. And its share in the national GDP has been steadily declining from that peak of the early 70s. Why did it happen?

Well, one part of it is, we have ended up trapping Punjab into always thinking of it as an agricultural hub. Because if you go back actually to the 70s and 80s, it had certain industrial hubs that were evolving. Ludhiana was, if you bought, you know, if you’re playing badminton, you bought a shuttlecock, or you bought a bat and ball and so on.

I remember they used to all come from Jalandhar or Ludhiana. There’s only two places we used to make quality sports goods. But it didn’t move up the value chain.

I mean, today we import a lot of it. And these hubs have not become some… even today they have some sports goods industry, but they didn’t grow along with the rest of the economy. And we created a world class software industry in Bangalore, which didn’t exist.

But Punjab didn’t move on to creating a world class sports goods industry or any other kind of thing. So I think it was a failure of policies. We didn’t pay attention to urban Punjab.

There is also a problem that those who kind of increased their income and got educated and so on in Punjab, didn’t then migrate to the cities of Punjab. Instead, they migrated to Vancouver. So, you know, so all of these things, they play on each other.

I think we need to pay more attention to urban Punjab. I mean, you know, as with anything, you need to move on and up the value chain. And we cannot say that, you know, we are stuck in, you know, we succeeded at one point in time because of something and then it kind of plays on itself.

Siddhartha Ahluwalia

And coming on to the other states that declined, for example, about West Bengal, you have mentioned a previous episode that went really viral, like the poverty of aspiration.

And we can see it clearly now in your paper through this data. West Bengal was contributing 10 percent, the third highest, and now it barely contributes 5 percent. And I’m not sure whether in the future this 5 percent would even go down to 3 percent.

Sanjeev Sanyal

So you can see that very clearly. West Bengal, actually the three big states that were industrial states in the 1950s, were not surprisingly the old presidency cities of the colonial era. There was Mumbai or Bombay then, Calcutta and Madras.

And so the industrial hubs are also there. So Kolkata was the biggest of those hubs. Yes, it got a bit of a shock because of the partition.

But nevertheless, it was a very serious industrial hub in the 1950s India. I mean, there were new things being invested into there and so on. Now, some part of it was bad policymaking at the central level that caused a decline of Kolkata.

So we should mention this. There was something called freight equalization and that meant that Kolkata could not take advantage of being close to many sources of cheap raw materials in Jharkhand and so on. So that was part of it.

But let’s be very clear, a large part of it was domestic policies of the state. There was a demonization of entrepreneurship, business and risk taking. And not surprisingly, through the 70s, 80s and 90s, business systematically left Kolkata so much so that it is not a serious player even at the national level today.

Whereas if you went back to the 50s, it was considered one of the most industrial places in all of Asia. Today in India, it is not considered one of the places. So there was… you know bad policies matter.

And this is also true of other places. Right next door in Bihar too, you had irrational social justice politics that ultimately jammed up the system, led to this whole period of Gundaraj, prolonged periods of it. And again, poverty of aspiration is an issue in many parts of eastern India.

And so, you don’t keep the law and order, you don’t encourage investment, the young people basically leave. So then feeds again, same feeding on itself as in Punjab, young people leave. Today, a young talented person who grows up in Kolkata doesn’t stay in Kolkata.

Let’s be very frank about it. They will go to, they will come to Delhi or somewhere in the NCR. They may go to Bangalore or Hyderabad. They may go abroad. But Kolkata’s talent just leaves.

Siddhartha Ahluwalia

And same is the case with Bihar. And let’s move a little bit east, right, to the eastern states. So people keep on talking about north versus south divide, whereas it’s really the east versus the west divide.

Sanjeev Sanyal

Absolutely. So India has a serious east-west divide. I mean, the north-south divide is not the serious divide.

Just look at a map, it will spring out at you because, you know, southern India has clearly done well since 1991. OK. Southern India, by the way, its success is quite recent.

It wasn’t a particularly great performer till 1991. In fact, Tamil Nadu, which in 1960 was a high performing state, actually by 1991 had lost share in some ways. And the other states weren’t particularly, I mean, Kerala had decent social indicators, but otherwise wasn’t a particularly high performing state.

It’s after liberalization, you see the real performance of the southern states and the real star performer is Telangana and Karnataka. Similarly, if you go to the other states, Western India, you see Maharashtra has been a more or less a steady performer. But Gujarat has done spectacularly well in the last 25 odd years.

Goa has done very, very well. Small state, but it now has per capita income three times the national average and 10 times that of Bihar. So, you know, you can see the gap.

So, you know, it’s southern India, western India, even in northern India. Yes, Punjab has been a laggard, but, you know, Haryana has done well, Delhi has done decently well and so on. So there are many places across India which do decently well.

But eastern India has been a real laggard in multiple ways. And, you know, we discuss West Bengal, look at Bihar. Bihar’s per capita income is only 33 percent of the national average, one third.

It is no longer deteriorating in the last decade or so. It has stabilized, but at a very low level. And before that, it had been continuously declining through the 60s, 70s, 80s, 90s, right into 2000s.

It was declining. Just last decade or so it has stabilized, but at this very low level, such a low base. Now, I admit that, you know, probably the number that I’ve given is the actual household income may be a little bit better because my numbers don’t have remittance.

So I just want to point that out in case somebody points it out. It doesn’t include remittances from outside, but nevertheless, you can see the gap. So eastern India clearly has a problem and we need to do something about it.

But this problem, while, as I said, there may be some old, you know, freight equalization or some such thing that may be the origin of the problem.

The fact is the single biggest problem now since freight equalization has gone for the last three decades. The real problems now are to get policies at the local level in these states to being, you know, progressive and entrepreneur friendly, economy friendly.

And even just basic law and order in some of these states, law and order as can be seen what is happening in West Bengal. Well, West Bengal, you can see what is happening right now. And, you know, these things are issues.

But when you actually more or less do a decent job, these things come back. And I’ll give you some examples of it. Odisha.

Odisha was always seen as being, you know, a real poor cousin, even in the eastern Indian context. Last 20 years, its per capita income has clawed back substantially to the national average. It is still well below the national average, but it is now not just higher than Bihar and Jharkhand, but also higher than West Bengal.

Because remember, West Bengal used to be the rich cousin. In 1960, its per capita income, despite all the chaos of partition and everything, West Bengal’s per capita income was 27% higher than, right? Today, it is 15% below.

Odisha, on the other hand, which was always the poor cousin, is now actually has a per capita income higher than of West Bengal. Similarly, Assam, its per capita income was roughly around about national average in 1960s. It continuously deteriorated.

Again, Assam agitation, all the other disruptions that happened there. But again, last decade or so, it has significantly caught up. Still below national average, but look at the jump.

So, having sensible policies, general governance being improved does have an impact.

And I think that is one of the main things that I want to bring out through my work, is that, you know, general governance, focusing on getting industry going, these things matter, and you have to keep upgrading them.

Just because you got one good policy and worked for a little while, as in the case of Punjab, doesn’t mean that it’s going to work forever.

You got to take the next step and the next step and so on. So, you got to move up the value chain. And yeah, so that is basically the important findings.

And of course, a corollary to this is the importance of having important urban hubs that drive this growth. So, every single case, wherever you are seeing this high growth kind of performance, there is an anchor urban hub. And they can be different.

So, for example, Karnataka’s performance heavily driven by Bangalore. Hyderabad heavily drives Telangana. Mumbai-Pune, that network, to a lesser extent Nagpur, drives Maharashtra.

It’s very dispersed in Gujarat. You have Ahmedabad, but you also have Rajkot, Baroda, Surat, etc. But still, as a network, it works.

Delhi NCR is a major driver of growth, Delhi city itself, but of course there is Noida now in West UP. You have Haryana, has Gurgaon, but also now it’s spreading into Sonipat and other places.

Siddhartha Ahluwalia

Chandigarh is also coming in.

Sanjeev Sanyal

Yeah, it’s kind of linking through to Chandigarh and then also to, even going through to Neemrana, through to Jaipur. I mean, that’s almost entirely urban now. So, all of these sort of these web of urban drivers is a key part of high growth.

Kolkata should have been that growth zone …

Siddhartha Ahluwalia

The anchor of the East

Sanjeev Sanyal

Yeah, anchor of the East. So, bringing back Kolkata is not just about reviving West Bengal. It is an anchor of the East, because when it gets going, it’s just overwhelmingly bigger than Bhubaneswar or Ranchi or Guwahati or Patna.

It will take us a very long time to simply reach the critical mass that Kolkata already has by virtue of inheritance. It still has many national institutions that are still based there for historical reasons or otherwise. So, if you really want to get Eastern India going, you’ve got to get Kolkata going.

Siddhartha Ahluwalia

And you are absolutely right. If we now look through your paper, the anchors of South are Bengaluru and Hyderabad. The anchors of West are Maharashtra, capital of Mumbai, and moving a little upward, Ahmedabad. Anchors of North are Delhi, Gurgaon, Chandigarh. But the East doesn’t have any anchor city at all.

Sanjeev Sanyal

Exactly. And the other cities that can be are just too small.

Siddhartha Ahluwalia

And do you think, how much is national level policy making attributed to the failure versus the state level?

Sanjeev Sanyal

No, as I said, national level policies do matter. I gave the example of you know deliberate policy making in the 1950s, 60s, 70s, all the way through to 1993 of the freight equalization that did hurt Eastern India. But it’s been gone for 30 years.

So, get on with it guys. Why doesn’t it happen? Well, even if the central government did want to provide support, there has to be at the local level policies that can receive this and not squander the opportunity.

So, you know, there has to be a willingness to take the opportunities. And by the way, this is not a central government versus opposition state kind of thing. There are plenty of successful states in India that are ruled by opposition parties at different points. Not just now, but even earlier. States that were…

Siddhartha Ahluwalia

Odisha for example.

Sanjeev Sanyal

Yeah, Odisha did it and before that Gujarat did it.

So, local matters matter. So, local policies matter. So, you had Gujarat, which politically had a problem when our current Prime Minister was Chief Minister of Gujarat. There were political problems with it. But his state prospered.

Later on, when he became Prime Minister, there are states under him that also prospered. Telangana is a good example. Odisha is a good example. So, it’s not always the case that you know this is a…. you know that you can’t grow unless you are in the same thing.

There are very successful examples of states that have great policies at the ground level for whatever reason and they have leveraged it.

Siddhartha Ahluwalia

And your paper also shows that it takes a decade to stabilize a state like what has happened to the various states.

Sanjeev Sanyal

Yes. Well, when you are in absolute shambles, then simply stabilizing it is hard work. So, Bihar and UP have sort of stabilized in the last 10-15 years. In the case of UP, it’s now beginning to actually gather momentum upward.

Bihar hasn’t yet seen that. But it requires that people are there on the ground and that’s why I keep coming back to the point that in the end we are a democracy. And democracies demand, ultimately what the people demand is what democracies get.

Therefore, the aspiration and the poverty of aspiration issue is a non-trivial one. If your aspiration is trade union sloganeering, then that’s what you will get. If your aspiration is gangster politics, then that’s what you will get.

Siddhartha Ahluwalia

And it’s very interesting to note that today the five southern states contribute 30% of national GDP and it all happened after liberalization. Why none of the other states were able to capture liberalization as well as…

Sanjeev Sanyal

Well, they did. I mean, we talked about Delhi NCR. That’s also a result of it. Gujarat was a success because of liberalization.

Siddhartha Ahluwalia

Gujarat started happening 2000 onwards.

Sanjeev Sanyal

Yeah, I mean, we liberalized in 1991, so it took some time. But 2000 onwards, a few years later, it really took off.

So it is not the case that only the south has taken advantage of it. But yes, the south has been a particular success on this. And I would here particularly point out Karnataka and Telangana. They have been the real drivers of this.

Hyderabad being a major driver of this. And again, going back to the point, you need these power hubs driving the growth. And… But you have other places that have also succeeded.

So let me bring here two small states that have actually been quite big successes. One of them being Sikkim. Nobody thinks of Sikkim. But in fact, Sikkim has the highest per capita of any state in the country.

Siddhartha Ahluwalia

4X almost.

Sanjeev Sanyal

Well, not 4X, but a little over 3X. Goa, 3X. And these small states… Goa was always a little bit better performing than the rest of the country. But Sikkim was not.

So it’s a relatively recent high performer. And it has done well through sectors that are usually given short shrift in the national conversation as if it’s some soft thing on the side which you shouldn’t play with.

Tourism. I mean, what is the driving force of Sikkim and Goa? Tourism. You know, associated soft sectors. Education and things like that.

Siddhartha Ahluwalia

And you think just two of these sectors like tourism and…

Sanjeev Sanyal

Well, for a small state, yes. I mean, tourism is good enough. And there are many small states in India that could just succeed just on this one driver. I mean, there are many north-eastern states which are beautifully pretty states. Don’t have large population. If they just get their act together on tourism, you don’t need anything else.

And now it’s not the case that they are all remote and we can’t get there. Daily flights to pretty much all these places. And they have decent airports in some…

I mean, almost for every case there is a very good airport on location. And not just from Delhi to there. They are now criss-crossing across the country. All kinds of… Udaan scheme has ensured that you can fly from pretty much anywhere to anywhere. At most with one stop.

So, given all these linkages, there is a huge opportunity here for smaller states to do something. I mean, I gave the example of tourism. But it could be some other thing which suits the resources of that state. And you could do spectacularly well.

Siddhartha Ahluwalia

And it’s usually international tourism or a national tourism that does these states well?

Sanjeev Sanyal

Well, the bulk of India’s driving force is national tourism. So, one of the things that we found, interestingly, let’s take Goa into account. That Goa used to be kind of like the hippie kind of place.

Cheap tourism for white Europeans who wanted either something exotic or weren’t willing to pay the high price of going to some other location. So, cheap location for western tourists of the hippie kind who drove it. That has completely changed.

If you go there now, it’s mostly Indian tourists. And Indian tourists are willing to spend. It’s not like Indian middle class doesn’t have money to spend.

And what has happened is that Covid caused that transition. So, interestingly, because during Covid, foreign tourists were unable to come there. So, that ecosystem blew up.

But Indian middle class couldn’t travel anywhere. So, they said, okay, let’s go to Goa. So, interestingly, it is Indian middle class money that has upgraded Goa.

In the last five years, the upgrading of Goa has happened because of Indian middle class money. So, one of the interesting things is it’s also become less sleazy. You know, that entire…

I’m sure it’s still there somewhere. But it was all at one stage driven by this sort of go there, smoke pot kind of tourist. It has now upgraded itself, cleaned up its act. It’s a more wholesome place. And it’s a place where you go there for, by Indian standards, expensive hotels.

Siddhartha Ahluwalia

And what caused in case of Sikkim? How did Sikkim upgrade itself?

Sanjeev Sanyal

So, similar thing, Sikkim upgraded itself, even smaller state than Goa. Upgraded itself to a place for going for holidays, etc. But then it has also got, you know, Manipal University has a campus there.

It has got all kinds of these kinds of small industries going. Also got into hydroelectricity, although it did have a big accident, which may have caused a bit of a… tripped up that particular thing.

But still, I’m just pointing out to you that it got into all kinds of other areas using what its natural resources are.

Siddhartha Ahluwalia

And the last part that I want to cover is, you know, you are doing a lot on the naval side and the shipping side. I want to touch upon that.

Sanjeev Sanyal

So you know, I have some love for the sea. I have written about it and so on. So well, one of them is, of course, on the policy side, which is relating to the fact that, you know, India really needs to get, you know, its shipping thing going.

So we, very often when we are talking about the maritime side, we think about the landlocked part of it, which is the ports. And we are building, you know, new ports. One massive new port is coming up in Vadhavan.

But the thing that I want to highlight here is the fact that, you know, we need to have a much bigger shipping fleet. Indians are the great pioneers of shipping in the world.

For thousands of years, we were, you know, the maritime champions, sailing all over the Indian Ocean and beyond. And yet today, you would be shocked to know that, you know, 1% or so of the world’s ships are built by us. Okay. Almost half are built by China.

And if you include Japan and Korea, something like 90% or something like that of ships are built by just those three countries. We need to be in this game. Similarly, you know, 90% plus of our goods that are going in and out of the country are being done by foreign shipping lines, not by Indian ships.

So we need to encourage a culture of shipbuilding, of ship ownership, and of Indian flagging. I think that is not only, you know, as an economic activity, it’s important. But I think it’s also a security concern, you know, if there is some breakdown and disruption in the world because of pestilence of war or sanctions or something like that, we need to have our own ships to sail the seas.

And so I am a big advocate that this is something that is done and you may have seen recently that the government has been doing and of course, my colleagues in the shipping ministry have been at the forefront of this. So they have been working very, very hard and trying to push for all of these things.

Siddhartha Ahluwalia

And the goal would be to take it up to high single digit percentages.

Sanjeev Sanyal

Yeah, so at least let’s become a serious builder of ships, own our own ships, flag our own ships and be proud of Indian fleets. Ironically, Indian sailors have a disproportionate proportion of the world’s, you know, merchant navies run by Indian sailors. But they are sailing for somebody else’s ships, not for our ships, but we need to own our own ships.

So this is something that I am trying to encourage. Unfortunately, India has historically had a very landlocked view of what we consider infrastructure. So we need to change that in our own heads.

The big problem is in our own heads, because the way we teach our history, the way we think of India has historically been very landlocked. Now, why that is the case, we could debate, maybe because our capital is in Delhi or whatever. But today that has now begun to change.

And so we are beginning to bring back a maritime view of ourselves. I mean, British, for example, clearly think of themselves in a maritime sense. The Japanese think of themselves in a maritime sense.

Siddhartha Ahluwalia

Even the Americans.

Sanjeev Sanyal

Americans also have a maritime view. We historically did not have a maritime view.

Siddhartha Ahluwalia

And you are right, because only one of our major cities, Mumbai, is connected by it. The rest of, we don’t have major cities.

Sanjeev Sanyal

Chennai is also, and historically Kolkata too. But we have somehow not embraced this maritime part of our culture.

So you know, we don’t think of it, even when we teach our history, we barely talk about, I mean, the only time you hear about something maritime is, oh, the East India Company came and took us over.

So it’s only in a negative sense. So one of the things I am personally trying to do is to change the way we think about this. One, of course, is writing that book, Ocean of Churn, where I talk about it. But there is a project that I am associated with right now, which is funded by the Ministry of Culture.

And the Indian Navy has very kindly agreed to kind of curate it, is that we are building a 5th century AD ship. So we are building a wooden ship, based on what it would have been, based on sort of what we know, how it would have been during the Gupta period. So that ship is now currently under construction in Goa.

We are not going to use any nails in its construction, it’s stitched together. And it will use whatever we know from that period, from whether it’s from an Anjanta painting or there is a book called the Yuktikalpataru, there are descriptions from foreign visitors.

Siddhartha Ahluwalia

Was it a recent movie, Ponniyin Selvan?

Sanjeev Sanyal

No, that is a Bollywood thing, we are definitely not going to bother with that. In fact, ancient ships did not look like that. So what we need, so what we are doing is, we are doing a true reconstruction to the extent we can tell.

And so the ship is being built. And then, one it’s not a small ship, it’s about 21 meters long. And we are hoping that once it gets done and we test it, because remember, we actually don’t know how it will behave in the water.

We are using certain ancient technologies in there, because we want to be as true as possible to it. So as I told, we are stitching the hull together, no nails. We will use a square sail rather than a lantern sail, which would be used in a modern sailing ship.

It does not…We are putting a trailing oar as the main way of guiding it rather than rudder. And we are recreating the ancient anchor and all these kinds of things.

So we…when you combine all of these things, we don’t know exactly how it will sail. So we will have to learn that. But once we have done that, we intend to first sail it to Oman.

And then, if that goes well, that is a relatively small crossing, 2-3 week crossing, then the idea is that then the following year, so this we are hoping to do end of 2025, early 26, if that works out, then the following year, we hope to sail from Odisha to Bali, recreating a very ancient voyage called the Bali Yatra or the voyage to Bali.

Siddhartha Ahluwalia

And you are going to take one of the first Yatras?

Sanjeev Sanyal

Well, I hope to be on it, presuming that I am able to figure out how to sail this ship. But it’s some way to go. So let’s keep fingers crossed.

So, you know, there are many steps in between getting it in the water, getting all the masts and all that fixed, then learn how to sail it. Then once we think we know how to do it and safe enough, we will then have to do it.

So there are many, many steps yet. But I just thought I’ll tell you because I thought many viewers may find this an interesting project.

Siddhartha Ahluwalia

Well, thank you so much, sir, as always. We have just enjoyed our conversation so thoroughly and learned so much about how our various states are progressing. And it also shows us the economic part of where is the migration happening?

For example, why is the migration happening in Goa? You know, people from cities are migrating to Goa, but they wouldn’t have been to some other places. So these are very interesting.

Sanjeev Sanyal

Many things matter. I mean, in the specific case of Goa, Goa is presenting a sort of tourism and lifestyle attraction. So we want a certain quality of life and so on. So Goa has provided that.

And as it is attracting high quality people, it has its own dynamics because their entertainment, restaurants, other things that those high end people demand get built out, a certain kind of cultural life comes up and so on and so forth. So that happens.

But you see, we have to now, you know, Goa is one model. Gujarat can have another model, maybe build fabs and industrialize and do that.

Siddhartha Ahluwalia

And the gift city.

Sanjeev Sanyal

And gift city, which is a financial hub. Mumbai has built up, for example, needs to think of itself as a global financial center as well. So you need to create quality of life in a people who are shifting billions of dollars around the world are not going to live in the Mumbai as we know it today. So it needs a serious upgrade of its infrastructure which it is going through.

You know we are literally rebuilding the transportation system of Mumbai as we speak, whether it is the metro lines being simultaneously rolled out, the coastal road, the new airport and then there are parts of Mumbai that are clearly being upgraded, so you see Bandra Kurla complex.

I would argue it is now that small little bit but within that it is Singapore level quality of offices and so on. So you need to upgrade various places up the value chain. Some other places may need other things to be done.

Some places may need agriculture revolution. Some places like Bihar where wages are very low, maybe this is an opportunity given what is happening in Bangladesh to capture the textile industry for example.

Kolkata needs to rethink itself as a modern city rather than wallowing or thinking of it as some sort of a derelict colonial hangover. Now we have got to rebuild Kolkata in a modern way.

Siddhartha Ahluwalia

And you rightly said that Punjab hasn’t reinvented itself. You need to constantly reinvent yourself.

Sanjeev Sanyal

Yes. Absolutely. Look at Singapore. I mean Singapore starts out in 1960s as a former British port, military port for the most part. It uses its sort of the port that the British have left behind, moves into container shipping which was then a new thing in the 1960s.

It then moves into electronics. Ok. It succeeds in both of these things. Move up the value chain by the 80s and 90s into finance, succeeds in that, moves up the value chain into education and entertainment and other things and into even higher level of finance and other things.

So it has continuously moved up the value chain. Now supposing it had just done the first step, oh we are a container shipping guy and this… we have to stick here and we are never going to move up the value chain, Singapore wouldn’t be Singapore as it is today. So you have to reinvent yourself completely up the value chain.

So not only do you have to sort of invest into what you are doing today, you have to remember that some point in time you will become too expensive for that activity. So today we don’t think of Singapore except for some very high end electronics. It’s not the place to go for electronics.

And that’s how it should be. I mean why should Singapore which is a small island with very expensive labour get caught into making iPhones, it doesn’t. So it has very skilled labour, it does some very specialised areas of electronics, otherwise it’s moved out of that business.

Siddhartha Ahluwalia

And do you think the Indian states are getting that DNA right of reinventing?

Sanjeev Sanyal

So I think we need to have that attitude towards this, that we need to continuously move up the value chain and different parts of India will have to move up the value chain.

So you know there will be a time when certain Indian states will be too expensive to do certain kinds of activities. We should not get emotional about it, hand those over to another state, there are poorer states in queue, give it to them, you move up the value chain.

Siddhartha Ahluwalia

And how much does it require, the juggling between the state and the centre to make it happen, to reinvent a state?

Sanjeev Sanyal

Well the central government obviously plays some role in terms of, but think of the central government as BCCI. Its job is to make sure that the ground is set, the crowds are in the stands, that the TV rights have been sold and somebody is beaming it, make sure the two umpires turn up. But it’s not, for the most part, the central government’s job to play the game.

There are areas where the central government plays the game, but in what we just discussed, for the most part, unless it’s a strategic industry of some sort, it is the role of the states really for the most part to attract investment, to make it a good place to be.

And the big variations you see across India is really the result of that, because for the most part the rules are the same for the whole country.

Siddhartha Ahluwalia

Yeah. And I assume states that have the compounding machinery set in, like Maharashtra, they’ll keep on going up.

Sanjeev Sanyal

Yes. Well, Maharashtra has, but it is not that you do it once and then that’s the end of it. You have to keep moving up the value chain, so Maharashtra at some point may not be the best place to do certain kinds of manufacturing, that has to move on.

But look at what it did, I mean, if you were using today, you know, still trying to run the cotton mills in Parel, it would be a waste. So those mills shut down because of trade unionism and it caused a lot of problems in the 80s and 90s. But eventually, in a messy sort of way, Mumbai did move on.

And those old mills have now been redeployed to doing other things. And look at the kinds of economic activities that have emerged. My own view is, it could have been done better, the infrastructure could have been laid out before this transformation, anyway, the messy way that it has happened, it’s happened.

Even then, it has led to, you know, whether it’s Kamala Mills, Phoenix Mills, there are all kinds of economic activities happening there.

Siddhartha Ahluwalia

Thank you so much, sir. I thoroughly enjoyed this conversation, it truly sparks new ideas, it truly sparks new debate and you have done a phenomenal job in doing that.

Sanjeev Sanyal

Thank you so much.

Sanjeev Sanyal

Last time you sparked, you know, that UPSC is a waste of time and I think the nation got evoked by it.

Sanjeev Sanyal

No, so my idea here is that, you know, let Indian public debate is unfortunately not a clash of ideas. Most of it is Tu Tu Mai Mai of various political groups, and much of it is inane. So if somebody says, you know, the sun rises from the east, the other will suddenly have to say no, it rises from the west and there will be a pointless debate.

I think a healthy public debate is about a clash of ideas, let there be different debates and you know, you don’t have to have a consensus on anything.

But it’s important to have healthy debates and as I said, my views on UPSC and the fact that I think that too many young people are spending too much of energy trying to crack that one tiny exam, you know, you can agree, you can disagree. But I think it’s a good thing that there is a national debate on something that affects so many lives.

Siddhartha Ahluwalia

Thank you so much.

Sanjeev Sanyal

Thank you.