India to log ‘one of highest growth rates’ with support to vulnerable sectors: Ashima Goyal

INTERNATIONAL DESK: Eminent economist Ashima Goyal on Sunday said India is likely to have one of the highest rates of growth in the world as there are gradual moves towards normalisation, even as stimulus and support for vulnerable sectors continue. Goyal further said sticking to the announced consolidation path by the government in the upcoming budget will give a good signal of control and predictability.

“India has come out of a very difficult time with good macroeconomic parameters. It is likely to have one of the highest rates of growth in the world, while inflation remains within the tolerance band,” she said.

Goyal, who is also a member of the Monetary Policy Committee (MPC) of the RBI, in an interview to said monetary-fiscal coordination has worked well and stimulus has been adequate but not excessive.

“There are gradual moves towards normalisation, even as some stimulus and support for vulnerable sectors continues,” she said, adding that the financial sector is healthy.

The RBI has lowered the growth projection for the current financial year to 9.5 per cent, while the IMF has projected a growth of 9.5 per cent in 2021 and 8.5 per cent in the next year.

On threat from the new COVID-19 variant to the economy, Goyal said the recovery should be durable, with productivity enhancing reforms and the appropriate policy support.

“The country is now much better prepared to face another wave, if it happens. In the second wave, disruption to the economy was lower because there is less supply chain disruption with localised lockdowns,” she noted.

The new potentially more contagious B.1.1.529 variant (Omicron) was first reported to the World Health Organisation (WHO) from South Africa on November 24.

Asked about going with fiscal consolidation or continuing with stimulus in the coming budget, the eminent economist said “sticking to the announced consolidation path will give a good signal of control and predictability”.

“Reforms such as more transparency should continue,” she said, adding that this improves the credibility and accuracy of the budget figures.

According to Goyal, revenue buoyancy gives the space to finance essential expenditure consistent with medium-term consolidation on the announced path, which already builds in some stimulus.

She noted the improvement in the quality of expenditure adds to the stimulus as does using the financial sector through warranties that do not add to current borrowing requirements.

Goyal pointed out that improving the quality of expenditure implies a shift towards high multiplier and high job creation items such as investment, human capacity creation, supporting vulnerable sections and the greening of the economy.

On high inflation, Goyal said high WPI reflects high import prices, especially commodity prices, which may not persist beyond the winter.

“The Covid situation is making them exceptionally volatile and multiple shocks have occurred. CPI inflation, however, remains within the tolerance band and is expected to soften next year,” she opined.

While the cut in fuel taxes has already led to some reduction, Goyal said in India, because food price inflation has a larger impact, the causality tends to be from CPI inflation to WPI.

Asked about the impact of ‘taper tantrum’ or withdrawal of monetary stimulus by the US Federal Reserve on India, Goyal said the announcement of a faster taper has not led to untoward disruption in global markets, since they tend to accept announcements clearly linked to macroeconomic developments.

“India has more stable macroeconomics and a larger stock of reserves than it did in 2013. Moreover, the real interest differential is lower since US inflation is high,” she said.

According to Goyal, so India is in a better position to survive US monetary policy exit without a large depreciation while keeping its policy rates aligned to its own domestic cycle.

Replying to a question on cryptocurrencies, she said they are better called crypto-tokens as they are not acceptable or adequate as currencies and should be banned as legal tender, but regulated as tokens.

“Only large transactions, from investors who are aware of the risks, may be permitted. A total ban is difficult to implement and would only increase illegal activities and participation in the dark net,” she said.

India is contemplating bringing a bill in Parliament to deal with the challenges posed by the unregulated cryptocurrencies.

Currently, there are no particular regulations or any ban on use of cryptocurrencies in the country.

(The Economic Times)