NEW DELHI: Nobel Prize winning economist Abhijit Banerjee has a piece of advice for the Narendra Modi government’s policymakers: Don’t waste time worrying about monetary policy as the economy is in a “tailspin”. Instead, find ways to revive demand to lift the sinking economy.
Speaking at a press conference called by the Massachusetts Institute of Technology at Cambridge, US, on Monday, he said the need of the hour is to pump money into the economy “especially in the hands of the poor”.
His comments come in the backdrop of concerns about a protracted slowdown, with India’s GDP growth moderating to 5% in the first quarter and the index of industrial production slipping to 1.1% for August. The passenger vehicles sector also reported massive contraction with sales dropping as much as 24% last month.
After initial denial about the deepening slowdown, the government reacted by infusing fresh capital in state-run banks and slashing corporate taxes. The Reserve Bank of India also played its part by reducing interest rates. Economists welcomed these moves as positive but warned they alone would not help reverse the lack of demand plaguing the economy.
“The Indian economy is doing very badly in my opinion,” Banerjee said, citing the recent NSSO survey, which hinted at a sharp decline in consumption demand in both urban and rural areas. “It is a glaring warning sign,” he said.
He warned that the “economy is slowing down very, very fast” and added that “we don’t know how fast as there is dispute over data”.
The survey, which has not yet been officially released, shows that the average consumption expenditure at current prices fell from Rs 1,587 per person per month (ppm) in 2014-15 to Rs 1,524 ppm in 2017-18 in rural areas, and for urban areas, from Rs 2,926 ppm in 2014-15 to Rs 2,909 ppm in 2017-18.
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Besides Banerjee, many other leading economists have suggested India relax its fiscal deficit targets and pump prime the economy by spending more on infrastructure, helping create jobs and demand. Prof. M Govinda Rao, former member of PM’s Economic Advisory Council had told this publication earlier that India needs to “relax fiscal targets and go back to the drawing board with revival plans.”
Banerjee warned that the “economy is slowing down very, very fast” and added that “we don’t know how fast as there is dispute over data.” The government “has a particular view (that) all data inconvenient to it is wrong,” he said on Monday.