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India better placed than others, still on course for 7% growth, says CEA

India better placed than others, still on course for 7% growth, says CEA thumbnail

Synopsis

India’s fiscal policy was not overly expansionary during the pandemic. Monetary policy did not expand the balance sheet as much as in other countries, nor was there a leverage build-up.

PTI
Chief Economic Advisor V Anantha Nageswaran

Chief economic adviser V Anantha Nageswaran said India is still on course for 7% growth in the current fiscal year although “downside risks dominate the upside risk” but it’s “better placed” than other countries.

“What gives us strength is the fact that domestic consumption is the biggest driver of growth,” he told ET in an interview on Thursday. “I would argue that once the current one-off exogenous external shocks dissipate, I am still confident that the sustainable growth rate will be closer to 7%.”

He dismissed reports of JP Morgan not including India’s sovereign bonds in a widely popular global index due to concerns about the country’s market infrastructure.

“We have to understand that the stated reasons are not real reasons–this is a very specious excuse,” he said. “India’s infrastructure is far more advanced.”

India has made its stance clear about not giving up its sovereign right to tax, he said.

Geopolitics, Oil Concern Areas


Countries with capital gains tax have had their bonds included in these indices, the CEA said.

“We have to wait and see where this conversation and so-called public diplomacy and public bargaining eventually converge,” he said.

India’s fiscal policy was not overly expansionary during the pandemic. Monetary policy did not expand the balance sheet as much as in other countries, nor was there a leverage build-up.

“All these are working in our favour,” Nageswaran said, adding that the private sector is beginning to spend.

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What the government is doing with respect to the production linked incentive (PLI) schemes and Aatmanirbhar Bharat to boost manufacturing makes sense.

While immediate data may not be available, “we hear anecdotally that there are many sectors and industries where inquiries for setting up shop in India to diversify their production base and export base out of China are proliferating,” he said.

He said there were many worries for the global economy, including monetary tightening and higher interest rates.

“Geopolitics is the much bigger elephant in the room,” he said, flagging oil as a greater worry after OPEC decided on a “very significant” production cut. However, unlike in the previous decade, he did not see the global situation as a big drag on India given reforms in recent years.

The financial system has been repaired, GST is maturing and helping formalise the economy, there is a public digital infrastructure and the government’s capital expenditure has ramped up. In a globally risk-averse environment, capital flows are going to be a challenge.

“We need to keep an eye on whether it is in terms of curbing unnecessary imports to the extent possible or finding other ways to attract capital,” he said.

The central bank last week lowered its FY23 growth forecast to 7.0% from 7.2% earlier.

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