‘Roll back tariff hikes for 8 per cent growth’
Former Niti Aayog V-C remains firm on 7 per cent plus GDP growth predictions for India
India can achieve 8 per cent plus annual GDP growth if the country rolls back the numerous tariff hikes since 2018, says Arvind Panagariya (Pic), economist and former vice-chairman of Niti Aayog, in an email interaction with The New Indian Express.
Given the current global economic situation, how do you see the Indian macroeconomic situation and how well-placed it is to sail through the current crisis?
On trade and capital flows, normalcy is back in the global economy. Global trade in 2022 was USD 32 trillion compared with a pre-Covid peak of USD 25 trillion. Global FDI flows in the first 9 months of 2022 were 16 per cent higher than the corresponding period in 2021 and well above those in 2018 and 2019.
India remains one of the fastest-growing large economies, but most estimates suggest we would grow at 6-6.5 per cent over the long term. Is it a good enough rate of growth for India? Have we given up hope on an 8 per cent plus growth rate?
Calculated on the base GDP in 2021-22 reported by MOSPI at the time I predicted 8 per cent growth for 2022-23, the second advance estimate of GDP for the latter year indeed implies 8 per cent plus growth. It is because the 2021-22 GDP has been revised significantly upward that the 2022-23 second advance estimate for growth in GDP turns out to be 7 per cent. As for the future, I remain firm at my 7 per cent plus prediction under business as usual and 8 per cent or more if we roll back the numerous tariff hikes since 2018.
One of the problems that many economists see with Indian growth right now is the slow take-off of private investment. Do you agree with this assessment and what do you think could be the government’s strategy to ensure pick-up in private investments?
This is a case of lazy commentary. These commentators do not check the data. Real investment as a proportion of GDP has been steadily rising and as per the second advance, the estimate stands at 34 per cent. Given that the government investment (Centre plus state) is no more than 7 per cent, private investment has seen a significant acceleration in recent years, especially in 2022-23.
The government has increased its capex allocation to record levels, but capex as a percentage of GDP (GFCF as % of GDP) is not as high as we saw between 2006-07 and 2011-12.
This is a question of fact-checking. I leave it to you.
The government has been pushing the PLI scheme in almost all sectors of manufacturing. But PLI cannot be a panacea for all manufacturing ills of the country. Do you think PLI will be able to help India realize the dream of seeing the contribution of manufacturing in GDP go beyond 20 per cent?
I have to admit that manufacturing remains our Achilles heel. I have consistently argued that PLI may make a difference in the specific sectors targeted by it but it cannot make a perceptible difference to the total manufacturing output. For total manufacturing production, we need to fully implement the labour law reforms, and address the issue of high land and electricity prices, and the overvalued rupee.
Some analysts have pointed out that incentives have also been given to sectors where India already is well-established. Do you think some of the PLI incentives are given to unnecessary sectors?
I see no problem with it as long as the established sectors are ones where we have a comparative advantage (translation: we export those products). On the contrary, when we give subsidies in non-existent sectors, there is a huge risk that we are subsidizing sectors in which we lack comparative advantage (why else are they non-existent?)
You have been a critique of the government’s Atma Nirbhar Bharat approach in the sense that you have opposed levying high duties on imports. Do you think this is a wrong approach especially if you want the country to be an export hub?
I am critical of protectionist policies, not Atma Nirbhar Bharat. The former came well before the PM talked about Atmanirbhar Bharat. I have never heard the PM translate Atmanirbhar into self-sufficiency. Instead, he always uses it in the sense of self-reliance. If he had meant to use it in the sense of self-sufficiency, he would not have applauded India for crossing the USD 750 billion mark in exports in 2022-23. Just as individual households should seek to be self-reliant, nations should also aspire to be the same.
Our exports have touched record levels of USD 750 billion helped by a sharp increase in services exports. Some economists suggest that India should not unnecessarily try to chase the dream of becoming a manufacturing hub, but instead spend more of its energy on becoming a services exports hub. Your take on this.
What suggestions do these economists have for the 45 per cent of the workforce, which is currently employed in agriculture and another 45 per cent which is either self-employed or employed in enterprises with less than 20 workers each (the average labour productivity in both of these activities is abysmally low). Do they have a roadmap to create well-paid jobs for at least half of these workers in export-oriented services?
India has been trying to push rupee trade with some countries. What are the challenges in making the rupee trade popular and should India look for full capital account convertibility before aiming for the rupee to be a reserve currency?
For the coming decade, the dollar will remain at the centre of our (and other countries') trade. On the margins, we can shift to payments in the rupee or non-dollar currencies but for now, this is unlikely to go very far.