Free trade and bank recapitalization are key to India’s economic growth, Arvind Panagariya, former vice-chairman, Niti Aayog, and professor of Economics at Columbia University, said.
India witnessed a shocking 23.9 per cent contraction in the first quarter of the current financial year primarily due to the nationwide stringent lockdown for about two months in April and May.
“Keeping imports out protects the disability of the domestic companies by making foreign competitors less able. Instead, India needs to raise its productivity and lower its costs,” he said while speaking at the 47th National Management Convention of All India Management Association (AIMA).
He noted that economic growth slid in the past couple of years because of the stress in the financial sector which has filtered into the general economy.
“Restructuring loans will only delay NPAs [non-performing assets] and bankruptcies and not prevent those,” he said, adding that the economy paid heavily for the delay in Insolvency and Bankruptcy Code. He said that a credit collapse will happen again if the problem is not addressed immediately.
Panagariya also said that the Indian economy can tolerate 6-7 per cent inflation. He noted that a higher inflation in the April-June period was because of a supply shock and that it would drop as the economy opens up. Underlining that the Reserve Bank of India (RBI) should not be too obsessed with inflation numbers, he said that instead it must focus on preventing appreciation of the rupee as that could lead to erosion of the value of India’s exports.
The former Niti Aayog boss also said that the government must resort to more privatization and monetization which will help in revenue generation. Until revenue is not boosted there could be severe escalation of debt to GDP ratio.
He added that while agriculture reforms were good for the farmers, as they would re-distribute agriculture income in their favor, those measures would do little for economic growth. He pointed out that the Indian economy shrank 23.9 per cent in April to June quarter despite satisfactory growth in agriculture.
“With only 15 per cent share in the GDP, at its best performance, agriculture would contribute merely 0.6 per cent to the GDP growth,” he said. Also, with average farm size being less than a hectare, doubling or even trebling farmer income will make little difference, he noted.
On Prime Minister Narendra Modi’s Atmanirbhar Bharat scheme, Panagariya said that it was rhetoric meant only for the domestic audience, mainly farmers, adding that it merely meant that people need to be self-sufficient and look after themselves instead of expecting handouts from the government..
