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Indian economy faces tough challenges of maintaining sustainable high growth and moderate inflation, Chief Economic Advisor V Anantha Nageswaran has said. However, he opined that India is better prepared to face the challenges.
Meanwhile, Economic Affairs Secretary Ajay Seth has said that fiscal and monetary authorities are working together to moderate inflation while keeping the growth momentum intact.
Remarks from these officials have come on a day when Monetary Policy Committee (MPC) decided to go for a second hike in the policy repo rate (the rate at which RBI lends money to schedule commercial banks) to tame inflation. With half a percentage hike in repo rate on Wednesday, the total increase is now 90 basis points.
Both Nageswaran and Seth spoke during and sideline on an event organised by the Economic Affairs Department and SEBI which was presided over by Finance Minister Nirmala Sitharaman in the national capital on Wednesday.
New challenges ahead
Sitharaman said that reforms during eight years helped the Indian economy to resolve issues related to the twin balance sheet, fragile five and NPA. Also, measures such as the introduction of GST, IBC and reducing the corporate tax were kind of heavy lifting which “helped us to face the situation which nobody expected.”
In his speech, Nageeswaran said, “This year we will be facing the challenges of managing a sustainable high growth, moderate inflation, keeping the fiscal deficit under balance and also ensuring that the external value of the Indian rupee remains the same.”
Further, he mentioned that naturally there’s no pre-programmed roadmap or menu of options that will help us achieve these challenges and flexible policymaking. The Ministry of Finance is well prepared to meet these challenges of balancing these four important considerations.
He urged to look beyond current concerns about inflation, the crisis of oil, food, fertiliser, central bank interest rates, etc because India has emerged out of the previous decade with its financial system well repaired and improved and the balance sheet strength in the corporate, banking and financial sector.
Reforms such as Goods and Services tax, insolvency and bankruptcy code, etc might have been temporarily overshadowed by external events such as the pandemic and now the geopolitical conflict.
However, “once these clouds recede they will begin to manifest their benefit or advantages in advancing India‘s potential growth in the decade to come,” he said while highlighting what International Monetary Fund (IMF) has said.
The agency has forecasted the Indian economy to be $5 trillion by 2026-27. “If the dollar GDP of the country doubles every seven years, we will be at $20 trillion GDP by 2040 with a per-capita income of close to $15,000,” he said. “We need to understand that the medium-term fundamentals of the Indian economy remain solid and Indian economy is much better placed than many others in this world to face the challenges that we are currently encountering.”
MPC Decision
Later, talking to reporters on the sideline of the event, Economic Affairs Secretary Ajay Seth termed action by MPC to raise the policy rate as a part of combined action to tame inflation.
Taking a cue from CEA, he said that both arms are working on maintaining higher growth and moderate inflation, external management of the rupee, and keeping fiscal balance on the path announced in the Budget. So, “both monetary and fiscal authorities are working towards that goal,” he said.
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