Sanjeev Sanyal on India’s global strategy, new world order, geopolitics, China, BRICS, Quad and India’s balancing act

The world order is changing, and India cannot follow a rigid approach, Sanjeev Sanyal, Member of the Prime Minister’s Economic Advisory Council, tells Firstpost in an exclusive interview. Calling it a “disrupted world”, Sanyal says India must stay flexible and work with the Quad, BRICS, the EU or the Global South depending on the issue.

That flexibility will also be crucial for the economy, he says, as India faces high oil prices, geopolitical conflicts, US tariff uncertainty and a volatile global environment. While calling the 7.8 per cent GDP growth print “very good”, Sanyal says sustaining growth of around 7 per cent would be a strong outcome. He also weighs in on China, UPI MDR charges, the new GDP series and AI, warning against protecting old jobs at the cost of embracing new technology.

Edited Excerpts: 

How do you see India’s foreign policy positioning amid rising geopolitical uncertainty, particularly with Trump threatening 100 per cent tariffs over Russian oil imports? How should India navigate this? 

This is a disrupted world where the old order is clearly falling apart, and a new one has not yet emerged. Now, in this environment, the most important thing for India is to be flexible. We already have described this in terms of what we call multi-alignment.

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Depending on what the topic and issue are, we work with Quad, but we also work with BRICS. We also work with the European Union on some issues. On some other issues, we may work with the Global South. We are multi-aligned, and depending on the context, we will work with partners in that context.

Now, it’s obviously much harder work than having a very nice, neat, and clean sort of approach to things. But we’re in a disruptive, fluid environment. What better way of dealing with it?

How do you see the global economy and India’s economy navigating the current geopolitical turmoil, with conflicts in West Asia and the Russia-Ukraine war?

This is not an easy situation to be operating in. There is a direct impact of the fact that we are big importers of energy and you have a conflict going on right next door in the Middle East, but also the Ukraine-Russia war has also sort of spiralled up again with sort of both sides hitting each other’s installations. So you can see that oil prices are well above $100 per barrel right now. And it affects us. But there are other things as well. The Middle East has almost 10 million Indians living there, as you are aware.

Their well-being is something that is a contingent risk to India. They obviously also send a large amount of remittances from there. And also remember that these countries in the Gulf are also importers of a large number of Indian exports of various kinds, food and all kinds of other things. This is not a happy situation. We also have on and off the US tariff conversation, which is also quite disruptive. And then the overall global economy that is disruptive generally.

Even if none of these were directed at us, as such, it would still not be a happy situation. This is a very tricky environment in which to function. So the recent 7.8 per cent GDP growth print that we got was exceptionally good for the circumstance. But let us not kid ourselves that this is an environment that is an easy one to function in. And so we will have to continuously adapt to things as they evolve.

Do you expect this geopolitical turmoil to persist, or is there a possibility of stabilisation in the long term? 

Your guess is as good as mine. I wish I knew. The Middle East situation in the beginning of the year – nobody would have predicted we would be in this particular predicament. Not only is the Hormuz in trouble, but we also have the Bab-el-Mandeb in a troubled and disrupted situation. And who knows where this could go? I am not going to pretend that I know how this will evolve.

What I can say is that the Indian policymakers have worked very hard to try and create buffers where we can. To try and be as flexible as we can. Occasionally, it does mean that we have to do tricky things, especially when the US also threatens to put tariffs on India for securing our energy supplies, including supplies from Russia, for example. That is tricky at the best of times, even without this additional pressure.

This is a very difficult and tricky situation. And obviously, we are consequently trying to do the best we can. As I said, I think we can say that we have done reasonably well given the circumstance so far. But somewhere along the way, who knows how this will evolve? As I said, I am not pretending to know how this is going to pan out.

India just posted 7.8 per cent GDP growth, but you’ve said around 7 per cent would be a strong outcome. Does that mean 8 per cent growth is too ambitious in the current environment, and why? 

This business of ‘we must aim for something’ is a ridiculous way of saying it. So when you get out in the morning and go out for a drive, do you aim for an average speed? You don’t. You drive according to the road conditions. So road conditions right now are difficult, as we just discussed.

There are potholes on the road, there is all kinds of traffic on the road, and there are all manner of drivers that you can’t predict. We are driving at the fastest we can without ending up with some sort of an incident.

7.8 per cent is a very good growth rate under the circumstance. But I think, given the underlying conditions, anything in and around 7 per cent would be very, very good. I mean, incidentally, this is very much faster than other major economies. China will struggle to do 4 per cent, and the US is struggling to do 2 per cent. So under those circumstances, I think we will do quite well to manage a 7 per cent.

There will be a time, just like we have been unlucky in the last many years, first the COVID issue, and now all of this. In the same way, by the same logic, history will give us an open patch. And that time, yes, it will be a good idea to accelerate things. But for now, keeping a 7 per cent growth rate is very creditable.

Critics argue that the new GDP series makes India’s growth look stronger than it is. What is your response to this criticism, and why do you believe the new series gives a more accurate picture of growth? 

Let me put aside that this is not a response to people with basic arithmetic problems who think it’s 2.6 or something, because they divided the wrong series with the wrong series. So leave them aside. Let’s get to the more serious sort of discussion on why and how growth rates change depending on the series.

You will remember that the IMF had actually made a fuss, and many people, many critics at that time, had made a fuss that India’s national accounts are based on the 2011 series. And that was a fair criticism in the sense that every decade you should update it.

We had not been able to update it for the obvious reason, which you all know, which is that these series are updated at the beginning of the decade. And we had a very disruptive beginning to the decade. So the statistics for the years 2020, ’21, and ’22 would not have been representative of a normal year on which to base the creation. 

We had to actually wait till 2024 numbers came in before we could create a base. And since then we have been using it. This is the standard thing that is done. And all serious scholars will tell you that this is what should be used. Now, when you move on to a new base, a few things happen. You do remember that, and this is nothing unique. This is just a common-sense point that I’m going to make. 

You move on to a situation where you basically take the older sectors that were important in 2011, you reduce their weights and so on. And the newer sectors that may not have existed at that time, you give them weights. So two things happen. One is that your old series goes down, because now you’ve given those what were big sectors, and you are reducing their importance in the universe. But on the other hand, for new sectors that are emerging, you’re giving them higher weightage. So 2 things will happen. 

One is that the old estimate of GDP will go down. But your growth rate will go up. This is completely common sense. Now, this is exactly what happened with India. If we had gone by the old series, we would already be close to the 3rd largest economy in terms of US dollar nominal. That is what we were discussing, if you will remember. But when we edited it, we actually—our rank fell, I think, to 4, maybe even 5. 

But on the other hand, our growth rate goes up. Now, this is actually, in some ways, you can say that, why would we reduce the base number? Because, you know, that makes our GDP in US dollar terms decline. But we did because it’s statistically correct. 

For the same reason, the benefit of it is you will get the higher growth rate, which is, by the way, the correct judgement on how fast the economy is growing. Because, you know, just to give you an extreme example, if typewriters had a very high weightage then, but we no longer produce them, whereas, you know, cell phones didn’t exist; we weren’t producing too many cell phones in 2011, but we now do, so obviously the growth rate will accelerate accordingly.

There is growing concern over MDR charges. If merchants ultimately pass the cost on to consumers, why not keep UPI free as it has been so far? What is your view? 

I am not the person who’s worked on this issue. So I’m going to give you what I think is the answer. But I’m, as I said, not really looking into it. From what I get, this is a long-term issue. Who pays for it? And as volumes keep going up, the amount of infrastructure and other things need to keep going up. Now, the judgement had been made whenever this was introduced, I think a decade or so ago, to keep it free, because now you make everybody make it widely available. Now it is; it’s a hugely convenient thing.

But of course, somebody has to pay for it. Now, if you were using credit cards and so on, then, you know, merchant discount, there is a merchant rate that is paid. And here the judgement is being made that at some point in time, the system has to pay for itself. How much and at what level? As I said, I’m assuming between NITI Aayog and Finance Ministry, they have done the maths. I am, since I have not worked on it, I will not be able to give you the details of it.

But do you feel that that was a need of the hour to implement MDR?

Because, if you look, at some stage, you have to make trade-offs. Now, whether this is the correct trade-off or not, one can debate. But, you know, to say that no trade-off is being made is not true. Somewhere somebody has to pay for it. Now, whether the trade-off is this is the correct one, I am not able to tell you because I don’t know the data for this.

When we say we should engage with China, does it mean that we should allow more Chinese investment in sectors where Chinese technology and supply chains are difficult to replace?

We have done, as you will know, Press Note 3 was significantly changed about 6 months ago or a year ago. So we are anyway moving in that direction, but we are doing it at our own pace, making sure that, you know, we do it in our own terms.

Where should we draw the red line between India and China in crucial sectors like semiconductors and telecom? Where should the line be drawn?

Obviously, what we don’t want is another country taking control of our telecommunication system. So we have some concerns, and we will continue to monitor that. But that doesn’t mean that we shouldn’t engage in, you know, whatever, ready-made garments trade because we have concerns about telecommunication.

With AI-driven layoffs rising in India and globally, how should AI be regulated? Should regulation focus on protecting jobs while ensuring responsible AI deployment? 

I have been very clear in this. Regulation of AI is absolutely necessary because AI is an emergent technology which can go in different ways. And I have written about how it could lead to all manner of breakdowns in the future, misuses and other things. However, the one area in which I do—would caution against having excessive regulation—is in order to so-called save jobs.

We need humans in the loop, because AI will do all kinds of bad things if we don’t regulate it. So human beings will be needed in an AI world. I am totally not of the view that you will end up seeing things getting totally automated. AI will be needed. Some old jobs will indeed get wiped out, and a whole bunch of new jobs will get created. It’s difficult to predict what they will be.

They will get it; every technology has done this. There’s no reason to believe AI won’t do this. So new jobs will emerge. I just don’t, cannot not predict where they will be. Because after all, we are doing a podcast? Podcasting, or social media influencing, is a full-fledged career now. 10 years ago, it didn’t exist. I had no way of predicting it would be this way. In the same way, AI will create new kinds of jobs.

I can’t predict where it will be. So the most important thing is to maintain labour market flexibility, rather than insert various kinds of blockages and lock ourselves into old technologies. Far too often, policymakers lock in because of some luddite argument into countries that lock in old technologies and then ultimately suffer for it.

And by the way, any look at Indian history should immediately warn you against doing this. This is exactly the kind of thinking that led us to continue to use elephants in the face of cannons. And it led ultimately to us being colonised by foreigners. We must embrace the latest technology and do it as fast as possible.