Fundamentals of Indian economy remain strong: Arvind Panagariya

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The fundamentals of the Indian economy are sound, former Niti Aayog vice-chairman and economist Arvind Panagariya has said. Factors such as a law base and a sharp rise in the manufacturing and services sector have helped India’s economy grow by a record 20.1% in the June quarter.

If Covid appropriate behaviour is maintained, given that the work being done in vaccinating people was “excellent”, any future hiccups, such as restrictions due to the spread of Covid-19, could be avoided, Panagariya is quoted as saying in media reports.

Growing private investment

“In both Q3 and Q4 of FY21, Gross Fixed Capital Formation (GFCF) at 33% and 34.3% of GDP, respectively, was higher than in the corresponding (pre-Covid-19) quarters a year earlier,” Panagariya, who is now professor of economics at Columbia University, said in the interview, claiming that the pace of private investment was growing.

In response to a question on the stock market boom that is not in tune with the economic growth, Panagariya did not dismiss the probability of there being a “disconnect”. He said that high stock prices could be a “rational response” by equity investors given the high potential of India’s economy, underscoring that stock prices were determined by the investors’ expectations of returns in future.

On tapering

On the issue of foreign capital inflows, Panagariya said that quantitative easing, while encouraging the capital to move out of advanced countries, did in no way guarantee a passage to India instead of other growing economies. India was chosen by foreign investors, he said, because of the expectation of investors to get high returns. The noted economist added that while there remained the threat of tapering in advanced countries, the impact on India will depend on the returns in India relative to other economies.

Panagariya’s statements come at a time when the World Bank has projected India’s economy to grow at 8.3%, while the central bank has reduced its projection for the current fiscal from the earlier 10.5% to 9.5%.