Tuesday, 28 September, 2021
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‘India’s macroeconomy ready for faster growth’

‘India’s macroeconomy ready for faster growth’

NEW DELHI: Notwithstanding the pandemic severe shock, India’s macroeconomy is more healthy and ready for faster growth, eminent economist Ashima Goyal said on Sunday, observing that recovery from both the first and second waves was faster than expected points towards inherent strengths of the economy.

Goyal in an interview to PTI said there are already signs of a rise in private investment in sectors where capacity constraints have appeared, report agencies.

“Despite the Covid-19 severe shock, India’s macroeconomy is more healthy and ready for faster growth than it has been for a long time. That recovery from both the first and second waves was faster than expected points towards inherent strengths of the economy,” she said.

The Reserve Bank of India (RBI) has lowered the country’s growth projection for the current financial year to 9.5 per cent from 10.5 per cent estimated earlier, while the World Bank has projected India’s economy to grow at 8.3 per cent in 2021.

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

“Portfolio inflows into India are not only due to the quantitative easing of rich countries’ central banks, they are also attracted by India’s growth prospects. All emerging markets do not get such inflows,” the eminent economist opined.

She pointed out that the government is leading infrastructure investment and more durable foreign direct investment has a larger share in recent capital inflows.

“India, moreover, has enough reserves to ride out any volatility while ensuring interest rates are aligned to the domestic policy cycle,” she said.

On the stock market boom at a time when economic growth has slowed down, Goyal said stock markets are forward looking, so normally they do move ahead of the real economy. “Low interest rates also increase the present discounted value of future earnings and reduce the attractiveness of fixed deposits.

A wider Indian public has started participating in stock markets giving them a more diversified portfolio of assets,” she said. Observing that having different investor-types makes markets more stable and reduces volatility, Goyal said “gradual rise in policy interest rates need not lead to a major correction if the rise accompanies a growth recovery, which is positive for markets and long term growth prospects remain good.” On recent calls for using the huge forex reserves for infrastructure development or recapitalisation of public sector banks, the economist said Indian forex reserves are not earned by an excess of exports over imports.

“They are borrowed reserves built up from foreign inflows that create liabilities. Reserves have to be kept in a liquid form and capital-value preserved to meet repayment obligations,” she said, adding they give security but are costly.