With most high-frequency indicators showing an uptick in the domestic economy even as risks stemming from global factors loom large on the external front, the “best case scenario” for the Indian economy would be a growth rate with “a 7 (per cent) handle in front of it”, Chief Economic Advisor V Anantha Nageswaran said on Friday.
“In a world without some of these external headwinds, we should be able to grow much faster. But I think, under the (current) circumstances, we should be somewhat relieved if the growth projections we see — whether it’s 6.5% or 7% or whatever (for FY23) — materialise,” he said at Express Adda here.
The CEA was in conversation with Anant Goenka, executive director, Indian Express Group, and P Vaidyanathan Iyer, executive editor, The Indian Express.
According to the CEA, every economic crisis doesn’t arise from deficient demand and so cannot be addressed with a heavy bout of fiscal and monetary support. Such open-ended solutions to crises, he noted, would inevitably cause pain when they are pulled back.
The CEA’s comments follow the International Monetary Fund’s warning on Thursday of a darker global outlook and some of the high frequency indicators, including exports, suggesting a slowing of India’s economic growth.
Any weakening of the aggregate demand in the country could lead to fresh calls for fiscal expansion. Already, the Reserve Bank of India is perceived to be in a cleft stick on the extent and duration of the phase of its monetary tightening.
Reiterating that India is relatively in a better shape than the rest of the world, Nageswaran said the progress after the pandemic, while being creditable, might have been uneven and slower than expected.
He said the government’s intent on privatisation remains “undiminished”, but ascribed the perceived ambivalence and slow progress on this front to hurdles created by some stakeholders, who would lose out in the process. It is the responsibility of not only the government, but also the rest of society to act in the collective interest of the nation, rather than being guided by narrow self-interest, he said.
Nageswaran said the Right to Information Act was indeed a necessary step towards greater governmental accountability, but cautioned against its “unintended consequences” (of policymakers opting for impunity to criticism), if the entire process of deliberations that precede decision-making is subjected to it. “We are cognizant of the fears of probe agencies slowing down decision-making,” he said.
As there are increased apprehensions about “weaponisation” of the dollar, he said not just sanctions, but episodes of dollar shortage — as in 2008 and now — also could herald and incentivise a trend towards trade settlements in other currencies. Internationalisation of the rupee, given the country’s elevated status on the global economic landscape, will be logical, but would be a rather slow process, he said.
In the most recent example of the weaponisation of the dollar, sanctions by the US and its allies in the wake of the Ukraine war led to the freezing of around half of Russia’s gold and foreign exchange reserves, which stood at near $640 billion before conflict started on February 24. Moscow subsequently announced its plan to initiate legal steps to recover the foreign currency reserves, but the western response led to fears that the dollar can be weaponised to arm-twist rivals.
Nageswaran refuted the notion that the “missing middle” phenomena of the Indian manufacturing sector (closure of MSMEs) has been aggravated by the demonetisation, a “flawed” Goods and Services Tax (GST) and a “forced” process of formalisation. He said the GST and digital infrastructure have, on the other hand, aided the middle segment of the industry by giving incentives to be part of the formal value chain. Nageswaran also sounded confident of India’s debt sustainability. With nominal GDP expansion being above the cost of borrowing, the debt trajectory would improve over the years, he said.