Indian Economy's Fundamentals Strong; Private Investment Picking Up: Panagariya
New Delhi: The fundamentals of the Indian economy are sound as the real GDP in Q3 and Q4 of FY'21 already crossed the pre-pandemic level, former Niti Aayog vice-chairman Arvind Pana-gariya said on Sunday.
Panagariya, in an interview with PTI, however also emphasised that the country needs to conquer Covid-19 as quickly and decisively as possible.
“Here the news on vaccination front is excellent. I only wish that we as citizens do our bit and religiously wear masks when coming in contact with others,” he said.
“In the third as well as fourth quarter of 2020-21, real GDP had already crossed pre-Covid-19 level... these facts tell me that the fundamentals of the economy are sound,” he said. Meanwhile, the Indian economy grew by a record 20.1 per cent in the April-June quarter this fiscal, helped by a very weak base of last year and a sharp rebound in the manufacturing and services sectors despite a devastating second wave of Covid-19.
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India is now on track to achieving the world's fastest growth this year, as per various estimates by experts.
The Reserve Bank of India (RBI) has lowered the country's growth projection for the current financial year to 9.5 per cent from 10.5 per cent estimated earlier, while the World Bank has projected India's economy to grow at 8.3 per cent in 2021.
Panagariya, a professor of economics at Columbia University pointed out that contrary to the general impression, private investment in India has certainly already picked up.
“In both Q3 and Q4 of FY21, Gross Fixed Capital Formation (GFCF) at 33 per cent and 34.3 per cent of GDP, respectively, was higher than in the corresponding (pre-Covid-19) quarters a year earlier,” he said.
Replying to a question on foreign capital inflows, the eminent economist said that let us be clear that they have not resulted just from quantitative easing (QE).
“True, QE encourages capital to move out of the advanced economies but that does not guarantee that it will come to India and not go to other emerging market economies,” he said adding that it chooses India because of the high returns that the Indian economy promises.
As tapering happens in the advanced economies, Panagariya said the threat of some reversal naturally remains though the outcome will depend on how much higher the returns in India remain relative to those in the advanced economies.
On the stock market boom at a time when economic growth has slowed down, he said there may be a disconnect but not necessarily.
Noting that stock market prices are driven by the expectations of future returns, he said, "Given the high potential of the Indian economy, what we see in terms of high stock prices may well be a rational response by equity investors."