Former NITI Aayog vice-chairman Arvind Panagariya on Sunday said it would be “foolish” to compare the economic condition of Sri Lanka with that of India.
However, lessons can be learned from the economic crisis in the island nation.
Mr Panagariya further said in an interview with PTI that since the 1991 payment crisis, successive governments have managed the macroeconomy in a conservative manner.
He said in India’s case, fiscal deficit has not been allowed to get out of hand, exchange rate has been allowed to depreciate to keep current account deficit low, monetary policy has been controlled to keep inflation low , and the opening of financial capital flows has been done in a calibrated manner.
“It’s a silly comparison. Suggestions of any similarity between India and Sri Lanka are ridiculous at present,” Panagariya said. He said that India rarely borrowed abroad to meet its fiscal deficit.
The eminent economist was asked to comment on former Congress President Rahul Gandhi’s statement in which Gandhi targeted the Modi government over rising inflation and unemployment and said that India “looks like Sri Lanka” and the Center is not paying attention to the people. Must be diverted.
Sri Lanka is facing a serious economic crisis and India has been at the forefront of providing financial assistance to Sri Lanka.
“We must certainly take lessons from the Sri Lankan experience for our future macroeconomic management. This is the main relevance of the events there for India,” he said.
Mr. Panagariya, Professor of Economics at Columbia University, answered a question on unemployment and said that India’s problem is not unemployment; Instead, it is under-employment or low-productivity employment.
“We need to work on creating well-paying jobs for the masses,” he said, adding that even in the 2020-21 Covid year, the unemployment rate came down to 4.2 per cent as compared to 6.1 per cent in 2017-18 Was.
The eminent economist noted that those who raged at 6.1 per cent in 2017-18 are now completely calm at the unemployment rate reported by the Periodic Labor Force Survey (PLFS).
Responding to questions raised by some experts on India’s official data on various subjects, he said the country’s GDP, PLFS and vital statistics collection is better than international ones.
“There are some real criticisms that need to be addressed. We definitely need to invest a lot more in improving our data collection,” he said.
Having said this, Mr. Panagariya said, ‘We must also invoke and reject the many inspired criticisms’.
For example, according to him, those providing alternative estimates of Covid deaths in India such as The Economist and The New York Times need to apply higher standards to evaluate their own (highly flawed) methodology.
Asked if he thinks the Indian economy is in better shape than it was eight years ago, he said, “You can look at any indicator you like: per capita income, poverty, life expectancy, nutrition and infant mortality rate. You will see an improvement in each of these indicators.”
Responding to a question on the weakening of the Indian rupee to a record low, Mr. Panagariya said the rise in interest rates in the United States has prompted capital to move from emerging markets and Europe to the United States.
“This has led to the depreciation of almost all major currencies against the dollar. The rupee is not unique in this regard,” he said, adding that if anything, the rupee depreciated against other currencies partly due to heavy interference. There has been a decline. RBI.
Mr. Panagariya pointed out that while the rupee has depreciated 7 per cent against the dollar during 2022, the euro has depreciated 13 per cent, the British pound 11 per cent and the Japanese yen 16 per cent.
In Asia too, the South Korean won, the Philippine peso, the Thai baht and the Taiwanese dollar have all depreciated over the rupee against the US dollar.
“The net result is an appreciation of the rupee against all these currencies,” he argued.
On anticipating an economic downturn, Panagariya observed that rates had not seen consistent inflation in four decades, and the gap in inflation expectations, especially in the United States, meant that the only way for central banks to break the inflation back was through a recession. is through. ,
“That is, central banks should continue to raise interest rates until economic activity collapses and forces a pause in the high inflation-high wages-high inflation cycle.
“In India, we do not face the same problem,” he said.
Responding to a question on high inflation, the eminent economist said that the source of India’s inflation problem is largely external – the unexpected sudden rise in oil and grain prices due to the Russo-Ukraine war.
With interest rates hiked by RBI, some thaw in oil prices and latest fruit and vegetable crops just around the corner, he said, “We will see inflation return to below 6 per cent by the second half of FY23, As told by RBI. Governor.”
Mr. Pangaria said that India’s inflation is at 7 per cent, which is only one per cent higher than the tolerance limit of 6 per cent under the inflation target.