Healthier Indian Macroeconomics Ready for Faster Growth: Ashima Goyal

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Despite the severe shock of the pandemic, India’s macroeconomics are healthier and poised for faster growth, prominent economist Ashima Goyal said on Sunday, observing that the recovery after the first and second waves has been faster than expected and points to the inherent strengths of the economy.

Goyal, in an interview with PTI, said there were already signs of increased private investment in sectors where capacity constraints have emerged.

“Despite the severe shock of Covid-19, India’s macroeconomy is healthier and poised for faster growth than it has been for a long time. This recovery from the first and second waves has been faster than expected, points to the inherent strengths of the economy, ”she said.

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 India’s economy to grow by 8.3% in 2021.

Goyal, who is also a member of the Reserve Bank’s Monetary Policy Committee (MPC), said that while many Indian start-ups are doing well, “however, we should not expect the infrastructure investment boom. private 2000s “.

“Portfolio inflows to India are not only due to quantitative easing by central banks in rich countries, they are also attracted by India’s growth prospects. Not all emerging markets are receiving such inflows,” said the eminent economist.

She pointed out that the government was leading infrastructure investment and that more sustainable foreign direct investment accounted for a larger share of recent capital inflows.

“In addition, India has sufficient reserves to overcome any volatility while ensuring that interest rates are aligned with the domestic policy cycle,” she said.

Regarding the rise of the stock market at a time when economic growth has slowed, Goyal said that the stock markets are forward looking, so normally they are ahead of the real economy.

“Low interest rates also increase the present value of future earnings and reduce the attractiveness of term deposits. A wider Indian audience has started to participate in the stock markets by offering them a more diversified portfolio of assets,” he said. she declared.

Observing that having different types of investors makes markets more stable and reduces volatility, Goyal said that “a gradual increase in key interest rates should not lead to a major correction if the increase is accompanied a resumption of growth, which is positive for the markets and the long-term growth prospects remain. Well.”



On recent calls for the use of the huge foreign exchange reserves for infrastructure development or the recapitalization of public sector banks, the economist said that India’s foreign exchange reserves are not gained by an excess of exports over imports.

“It is borrowed reserves made up of foreign inflows that create liabilities. The reserves must be held in liquid form and the capital value preserved to meet repayment obligations,” she said, adding that they provide security but are expensive.

According to Goyal, the best way to prevent an excessive accumulation of reserves is to increase the absorption of foreign inflows into productive investment.

“Until that happens, inflows could be mitigated using market-based capital flow management tools. The drive for better international regulation and safety nets should also continue. “she said.

Responding to a question about the digital currency offered by the RBI, Goyal said that a properly designed digital currency would have many benefits.

“It could build on India’s exemplary innovations in payment systems, facilitate cross-border flows, reduce costs, improve transparency, financial inclusion and the transmission of monetary policy, all in partnership with banks, ”she said.

Regarding the Asset Monetization Pipeline program, Goyal said it is a good innovative addition to the toolkit for financing new infrastructure.

She stressed that private participation is easier because there is no project risk, which is the most difficult for private actors to manage.

“But PPP contracts must strike the right balance between government revenues, private profits and reasonable user fees. Good regulation is a prerequisite for securing these,” she warned.

When asked if high CPI and WPI inflation was a concern, she said inflation is currently within tolerance bands.

“Signs of persistence are limited, implying that this is largely due to global and national bottlenecks related to the supply of Covid-19 and is expected to be transient, provided the government undertakes further actions of the supply side, ”she noted.

On what else the RBI can do to help economic recovery, the eminent economist said the RBI has done a lot with timely but temporary measures that limit long-term dependency and risky behavior.

According to her, some measures are already reversed.

“Targeted liquidity programs that ensure liquidity reaches all corners of the economy should continue.

“Further normalization must be slow and gradual, conditional on the recovery in order to anchor inflation expectations while supporting growth and ensuring financial stability,” she said.

Asked about the fiscal measures needed to support households in distress, Goyal said the budget deficit is already in double digits and interest payments take up the bulk of income.

“Given our very large population, advanced economy type protection transfers would force our deficits to reach 50% of GDP, which is not feasible,” she said.

Noting that funds must be used well and carefully, she said free food helps the very poor and the disabled, but the best targeted support for most households in distress is to increase job availability and capacity. to work through better support for health, training and education. .

“The emphasis on infrastructure is also helpful because it creates jobs now and makes it easier to work later,” she said.

(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)


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