The fundamentals of the Indian economy are solid; resumption of private investments: Panagariya
Panagariya, in an interview with PTI, however, also stressed that the country must conquer Covid-19 as quickly and resolutely as possible.
“The news here on the vaccination front is great. I just wish we as citizens would do our part and religiously wear masks when we come into contact with others,” he said.
“In the third and fourth quarters of 2020-2021, real GDP had already exceeded the pre-Covid-19 level … these facts tell me that the fundamentals of the economy are solid,” he said. declared.
Meanwhile, the Indian economy grew at a record 20.1% in the April-June quarter of this fiscal year, helped by a very weak base last year and a strong rebound in manufacturing and services despite a devastating second wave of Covid-. 19.
India is now on track to achieve the world’s fastest growing this year, according to various expert estimates.
The Reserve Bank of India (RBI) lowered the country’s growth projection for the current fiscal year to 9.5%, from 10.5% previously estimated, while the World Bank forecast that the economy India is expected to grow 8.3% in 2021.
Panagariya, professor of economics at Columbia University, pointed out that contrary to the general impression, private investment in India has certainly already picked up.
“In the third and fourth quarters of fiscal 21, gross fixed capital formation (GFCF) at 33% and 34.3% of GDP, respectively, was higher than in the corresponding quarters (before Covid-19 ) a year earlier, “he said. .
Responding to a question on foreign capital inflows, the eminent economist said it is clear that they are not the result of quantitative easing (QE) alone.
“It’s true, QE encourages capital to come out of advanced economies, but that does not guarantee that it will come to India and not to other emerging market economies,” he said, adding that he chooses India because of the high returns that the Indian economy promises.
While the reduction is occurring in advanced economies, Panagariya said the threat of some reversal naturally persists, although the end result will depend on rising yields in India relative to those in advanced economies.
Regarding the stock market boom at a time when economic growth has slowed, he said there could be a disconnect, but not necessarily.
Noting that stock prices are determined by expectations of future returns, he said: “Given the high potential of the Indian economy, what we are seeing in terms of high stock prices may well be a rational response from investors. equity investors “.
In recent calls for the use of the huge foreign exchange reserves for infrastructure development or the recapitalization of public sector banks, the eminent economist said he generally does not approve of the mixture of monetary policy and operations. RBI FX with fiscal policy.
According to Panagariya, all funds flowing from the RBI to the government should be made transparently in terms of the usual annual transfers from RBI income.
Noting that the ability of the RBI to defend the exchange rate in the presence of large capital flows depends on its foreign exchange reserves, he said: “As a general rule, we must refrain from undermining this capacity by plundering the reserves of changes for tax purposes “.
When asked if high CPI and WPI inflation is a concern, Panagariya said that indeed, at a time when the economy is still recovering, inflation in the he order of 6% is a good thing.
“Corporate profits and government spending and revenue are measured in nominal terms and slightly higher inflation contributes to healthy growth at a time when the economy is not operating at full capacity,” he said.
Panagariya observed that the 4 percent target with a 2 percent band around it should not be seen as a mandate to keep inflation always below 4 percent.
Asked about the fiscal measures needed to support households in distress, he said India’s social safety nets have grown considerably over the past fifteen years.
“I don’t see how we can borrow more even when the goal is as noble as helping the poor without putting the burden on future generations by increasing debt,” he said.
Panagariya suggested, “If we are to further extend social safety nets at current income levels, I would be in favor of further readjusting existing subsidies from the richest beneficiaries to the poor.
India has recently reoriented existing subsidies from the richer beneficiaries to the poor, for example, by diverting LPG subsidies from urban households to rural BPL households.
Regarding data from the Periodic Labor Force Survey (PLFS), both annual and quarterly, showing a marked deterioration in the quality of jobs, Panagariya said, “We definitely need to move workers out of the way. agriculture towards industry and services. From this point of view, the reverse movement is disturbing. “
He added, however, that he wouldn’t read too much in the 2019-2020 PLFS survey without a closer look at the role the workers’ movement played in these estimates between March and June 2020.
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