'India can Become a True Superpower'


Klas Eklund

Klas Eklund, the eminent economist from Sweden, talks to Diplomatist Editor-at-large Alankar Srivastava on sustainable growth, Paris Agreement and global economy post-Brexit. Excerpts...

Q. It's a pleasure to have you with us. Please share your perspective on Indo-Swedish relations.

They are good and improving further. During the past year, Indian president has visited Sweden, and the Swedish prime minister has visited India. Several business delegations have travelled between the two countries. Sweden has named India one of the most prioritised countries when it comes to improving economic relations, which is as it should be, given the size and growth of the Indian economy. And underlying this is of course also the fact that we are democracies with deep respect - and sometimes admiration - for each other’s societies.

Q. Sweden is a success story when it comes to sustainable growth. What are the lessons that India can learn from Sweden?

When it comes to energy, Sweden is lucky to have ample biomass from its forests and hydro power from its rivers. Historically, we also have a strong nuclear sector. This means electricity generation is almost totally fossil-free. Also in heating, oil has been phased out. One reason is high carbon tax. As an economist, I would recommend the use of economic tools such as taxes and subsidies to make ‘green’ goods and services cheaper for the consumer than ‘black’ goods and services. That would align the private economy of the household with society’s long-term interests and unleash the productive forces of markets and innovators in the right direction.

Q. Swedish companies have been ‘Making in India’ for a long time. Elaborate on the investments and employment opportunities that they have generated in India.

Manufacturers such as Ericsson, Atlas Copco, SKF, Sandvik, Alfa Laval, Volvo, Scania and others have had production facilities in India, benefiting from low costs. Now, they are increasingly moving more advanced functions here, as Indian skills are rapidly improving. R&D facilities are being set up, and some service functions have also moved. So our economic relations are broadening in scope.

Q. What must be the role and engagement, if I may say, of government in building a conducive business environment?

This is one of the most debated issues in economic policy-making. In general terms, I see the market as superior in creating growth and innovations. However, markets should be harnessed by a strong and competent state. This has previously been India’s Achilles heel.

The Swedish economist Gunnar Myrdal (Nobel Prize winner, and married to the Swedish Ambassador to India in the 1950s, Mrs Alva Myrdal) wrote a book in the 1960s where he said that India had a ‘soft state’ - too bureaucratic, too corrupt. Market reforms would not work well until the state had become more efficient. To some extent, this is precisely what PM Narendra Modi is doing now – whipping the bureaucracy in shape, to make it possible to implement future reforms of the economy. His strategy is long-term and necessary.

Q. What is the level of engagement of Swedish firms in India's Smart Cities project?

As far as I know, they are much interested in these plans. Several Swedish companies have high competence in waste management, infrastructure construction, bus traffic, building smart grids and telecom systems. So they are both willing and happy to participate.

Q. Many jobs are being replaced by digitalisation and automation in the labour market, both in manufacturing and in the services sector. How do you think India can take initiatives such as Skill India forward?

Such ambitions and initiatives are necessary. Improving skills are crucial to meet the future challenges. In the Western world, we have seen digitalisation replacing many lower-skilled service jobs in recent years – the kind of jobs which are the entry into the labour market for many young people. Thus, schools – both primary and secondary – need to improve their quality. And vocational training must play a much larger and recurring role, as new skills replace old.

Q. As an economist, if you had to choose the biggest area of concern when it comes to inequality in developing and developed countries, what would it be and what would be the first step to fix it?

Wow, that’s a tough one. One the global level, of course, the task is to make it possible to continue to lift millions of people from poverty in the emerging economies. In the rich countries, the increase in inequality comes rather from the very top income earners’ possibilities to exploit their strong position in global markets. I don’t believe higher taxes on the rich are the solution. Rather, the top priority must be to stimulate inclusive growth in low-income countries. And then I’m back to education and skills as the crucial parameters.

Q. What’s your take on India’s Goods and Services Tax (GST)?

It’s great that this reform at last will be implemented! It will ease transport, lower costs and speed up growth. Just about all economists agree that this will be a boon to India.

Q. Former RBI Governor Raghuram Rajan urged RBI Governor Urijit Patel to focus on controlling inflation. Comment.

Every central bank should fight inflation. And I am certain Mr Patel is an inflation fighter like his predecessor. I think the new set-up of the RBI, with a Monetary Policy Committee setting key rates, is a step in the right direction. It will make the RBI more similar to other leading central banks.

Q. In the wake of Paris Agreement, how do you think countries can ensure that growth doesn’t happen at the cost of environmental sustainability?

For that, they must not only sign the agreement but actually implement it. Whether that will happen, is too early to tell. Personally, I would not be surprised if another summit, say five years from now, will be necessary to follow up the Paris Agreement and put more pressure on the laggards.

Q. Give us a sense of the global economy in the post-Brexit era.

I’m pretty bleak about the Western economies and about Europe, in particular. It seems as though we are stuck in a period of prolonged stagnation, with high unemployment. There are structural factors behind this, both on the demand side and the supply side. There are demographic headwinds, we are too much in debt, investments are low, productivity is sluggish, etc. These are difficult to change. And when the next downturn comes, we might have used up most policy tools already, e.g., negative rates. In such a situation, it is tempting for populist politicians to pop up and claim there are simple solutions – closing the borders, protectionism, throw out the immigrants. This is dangerous. Europe might become even more fragmented.

The emerging markets, on the other hand, will continue to grow more rapidly than the advanced economies. India, in particular, has a chance to dramatically step up the ladder and become a true superpower.

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