Panagariya, however, in an interview to PTI, however, also emphasized that the country needs to conquer COVID-19 quickly and decisively.
“Here’s the good news on the vaccination front. All I want is that we as citizens do our bit when coming in contact with others and wear masks religiously,” he said.
He said, “In the third and fourth quarters of 2020-21, the real GDP had already crossed the pre-Covid-19 level…
Meanwhile, the Indian economy grew by a record 20.1 per cent in the April-June quarter of this fiscal, helped by a sharp rebound in manufacturing and services sectors despite a very weak base from last year and a disastrous second wave of Covid-19. 19.
According to various estimates by experts, India is now on track to achieve the world’s fastest growth this year.
The Reserve Bank of India (RBI) has reduced the country’s growth forecast for the current fiscal to 9.5 per cent from 10.5 per cent earlier, while the World Bank has projected India’s economy to grow at 8.3 per cent in 2021 .
Panagariya, professor of economics at Columbia University, said that contrary to popular belief, private investment in India has certainly already increased.
He said, “In the third and fourth quarters of FY21, gross fixed capital formation (GFCF) was 33 per cent and 34.3 per cent of GDP, respectively, higher than the corresponding (Covid-19) quarters a year ago. ,” They said. .
Responding to a question on foreign capital inflows, the eminent economist said that let us be clear that they are not merely a result of quantitative easing (QE).
“True, QE encourages capital to exit advanced economies, but does not guarantee that it will come to India and not go to other emerging market economies,” he said, adding that it chose India because of the higher returns. That’s what the Indian economy promises.
As developed economies taper off, Panagariya said the risk of some reversal naturally remains, although the end result will depend on how high the returns in India are relative to advanced economies.
On the stock market boom at a time when economic growth has slowed, he said there may be a disconnect but not necessarily.
Noting that stock market prices are driven by expectations of future returns, he said, “Given the high potential of the Indian economy, what we see in terms of higher stock prices may be a rational reaction by equity investors. “
On the recent call to use huge foreign exchange reserves for infrastructure development or recapitalization of public sector banks, the eminent economist said he generally does not approve of mixing monetary policy and RBI FX operations with fiscal policy. Huh.
According to Panagariya, whatever funds flow from RBI to the government should be done transparently in terms of normal annual transfer from RBI earnings.
Noting that the RBI’s ability to protect the exchange rate in the presence of large capital inflows depends on its FX reserves, he said, “As a rule, we need to gain this capability by raiding FX reserves for financial purposes.” should stop reducing.”
Asked whether high CPI and WPI inflation is a cause for concern, Panagariya said, “In fact, at a time when the economy is still in the recovery phase, inflation in the 6 per cent range is a good thing.”
“Profits of firms and expenditure and revenue of the government are measured in nominal terms and slightly higher inflation helps in their healthy growth at a time when the economy is operating at less than full capacity,” he said.
Panagariya said keeping inflation below 4 per cent with a band of 2 per cent with a target of 4 per cent should not always be seen as a mandate.
Asked what financial measures are necessary to help families in distress, he said India’s social security system has expanded significantly in the last one and a half decades.
“I don’t see how we can borrow more, when the goal is as noble as helping the poor without burdening future generations through increased debt,” he said.
“If we must further expand the social safety net at current levels of income, I would support further changes in existing subsidies from rich recipients to the poor,” suggested Panagariya.
India has recently reshuffled existing subsidies from rich recipients to the poor, for example, switching LPG subsidies from urban households to rural BPL households.
On data from the Periodic Labor Force Survey (PLFS), both annual and quarterly, showing a significant decline in the quality of jobs, Panagariya said, “We definitely need to shift workers from agriculture to industry and services. From this point of view, the reverse movement is disturbing.”
However, he said that however, he would not read much in the 2019-20 PLFS survey without examining closely what role the labor movement played in these estimates during March-June 2020.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.
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