Former NITI Aayog Vice-Chairman Arvind Panagariya said on Sunday it would be “silly” to compare Sri Lanka’s economic situation with India.
However, lessons can be learned from the economic crisis on the island.
Mr. Panagariya went on to say in an interview with PTI that since the 1991 balance-of-payments crisis, successive governments have managed the macro economy conservatively.
He pointed out that in India’s case, budget deficits have not been allowed to spiral out of control, the exchange rate has been allowed to depreciate to keep the current account deficit low, monetary policy has been curtailed to keep inflation low, and the opening of financial capital flows is done in a calibrated manner.
“This is a silly comparison…suggestions of parallels between India and Sri Lanka are laughable at the moment,” Panagariya said, adding that India has rarely borrowed abroad to finance its budget deficit.
The eminent economist was asked to comment on former congress speaker Rahul Gandhi’s statement, in which Gandhi lashed out at the Modi government about rising inflation and unemployment, saying India is “a lot like Sri Lanka” and that the Center should not distract people.
Sri Lanka is grappling with a severe economic crisis and India is leading the way in providing economic aid to Sri Lanka.
He said: “We definitely need to draw lessons from the Sri Lankan experience for our future macroeconomic management. That is the main relevance of the events there for India.”
Mr. Panagariya, an economics professor at Columbia University, answered a question about unemployment, claiming that India’s problem is not unemployment; instead, there is underemployment or low-productivity employment.
“We need to work on creating high-paying jobs for the masses,” he said, adding that the unemployment rate had fallen to 4.2 percent even in the Covid year 2020-21, compared to 6.1 percent in 2017-18. .
The eminent economist noted that those who cheered and cried at the 6.1 percent rate in 2017-18 have now gone completely silent on the unemployment figures reported by the Periodic Labor Force Survey (PLFS).
Asked by some experts about India’s official data on various topics, he said the country’s GDP, PLFS and key statistics rank well in international comparisons.
“There are some genuine criticisms that need to be addressed. We definitely need to invest a lot more in revamping our data collection,” he noted.
Having said this, Mr Panagariya said, “we must also provoke and reject a lot of reasoned criticism”.
According to him, for example, The Economist and DailyExpertNews that provide the alternative estimates of Covid deaths in India should apply higher standards to evaluate their own (very flawed) methodologies.
When asked if he thinks India’s economy is in a better position than it was eight years ago, he said: “You can look at any indicator you want: income per capita, poverty, life expectancy, nutrition and infant mortality. See improvement in each of these indicators.”
Responding to a question about the weakening of the Indian rupee to an all-time low, Mr Panagariya said the rise in interest rates in the United States had caused capital from emerging markets and Europe to move to the United States.
“That has led to a depreciation of almost all major currencies against the dollar. The rupee is not unique in this regard,” he said, adding that the rupee has depreciated at least less than most other currencies. partly due to heavy intervention by the RBI.
Mr Panagariya pointed out that while in 2022 the rupee has depreciated by 7 percent against the dollar, by contrast the euro has fallen by 13 percent, the British pound by 11 percent and the Japanese yen by 16 percent.
Also in Asia, the South Korean won, Philippine peso, Thai baht and Taiwan dollar have all fallen more than the rupee against the US dollar.
“The net result is an appreciation of the rupee against all these currencies,” he argued.
On fears of an economic recession, Panagariya noted that ongoing inflation at rates not seen in four decades and the anchoring of inflation expectations, especially in the United States, have left central banks the only way to control inflation. break through the recession.
That is, central banks must continue to raise interest rates until economic activity sees a decline and forces a break in the cycle of high inflation, high wages and high inflation.
“In India we don’t have the same problem,” he said.
Responding to a question about high inflation, the eminent economist said the cause of India’s inflation problem is largely external – unprecedented surge in oil and grain prices caused by the war between Russia and Ukraine.
With the RBI raising interest rates, thawing oil prices and the latest fruit and vegetable crops coming in, he said: “We will see inflation fall below 6 percent in the second half of FY23, as indicated; by the RBI Governor.”
Mr. Pangariya noted that India’s 7% inflation rate exceeds the 6% tolerance threshold below the inflation target by just one percentage point.