“Silly” to compare Sri Lanka’s economic crisis to India’s: Former NITI Vice President Aayog
Silly to compare the economic situation of Sri Lanka to India: Arvind Panagariya
New Delhi:
Former NITI Vice President Aayog Arvind Panagariya said on Sunday that it would be ‘silly’ to compare Sri Lanka’s economic situation with that of India.
However, lessons can be drawn from the economic crisis in the island nation.
Mr. Panagariya, in an interview with PTI, added that since the balance of payments crisis in 1991, successive governments have managed the macroeconomics prudently.
He pointed out that in the case of India, the fiscal deficit is not allowed to get out of hand, the exchange rate is allowed to depreciate to keep the current account deficit low, monetary policy is contained. to keep inflation low, and the opening of financial capital flows has been done in a calibrated manner.
“This is a silly comparison… the hints of any similarity between India and Sri Lanka are laughable at the moment,” Panagariya said, adding that India rarely borrows externally. to finance its financial deficit.
The prominent economist was asked to comment on a statement by former Congress speaker Rahul Gandhi, in which Gandhi hit out at the Modi government about rising inflation and unemployment and said that India looks “a lot like Sri Lanka” ” and the Center should not lose people’s trust.
Sri Lanka is grappling with a severe economic crisis, and India has taken the lead in extending economic support to Sri Lanka.
“We certainly have to draw lessons from the Sri Lankan experience for our future macroeconomic management,” he said. That is the main relevance of events there for India. .”
Mr. Panagariya, professor of economics at Columbia University, answered a question about unemployment and asserted that India’s problem is not unemployment; instead, it is underemployment or low productivity.
“We need to make an effort to create well-paying jobs for the masses,” he said, adding that the unemployment rate even in Covid 2020-21 has dropped to 4.2% from 6. .1% in 2017-18.
The prominent economist noted that those who used to cry and cry at a rate of 6.1% during 2017-18 are now completely silent about the unemployment rate reported by the Force Census Periodic Labor (PLFS).
To the question of several experts about India’s official data on various topics, he said the country’s GDP, PLFS and key statistics collection are very good compared to national comparisons. economic.
“There are some criticisms that really need to be addressed. We definitely need to invest more in improving our data collection,” he noted.
In saying this, Mr. Panagariya said, ‘we must also appeal to and reject a lot of motivated criticism’.
For example, he says, newspapers like the Economist and the New York Times that provide alternative estimates of the number of Covid deaths in India need to adopt higher standards for evaluating methodologies (which are very lacking). remnants) of their own.
When asked if he thinks the Indian economy is in a better position than it was eight years ago, he said, “you can look at any indicator you like: per capita income, poverty, poverty. , life expectancy, nutrition, and infant mortality. You’ll see an improvement in each of these metrics.”
Responding to a question about the Indian rupee weakening to a record low, Mr. Panagariya said the rate hike in the US has caused capital flows out of emerging markets and Europe into the US.
“That has led to a devaluation of nearly all major currencies against the dollar. The rupee is not unique in the sector,” he said, adding that if anything, , the rupee has depreciated less than most other currencies partly due to the heavy intervention of the RBI.
Mr. Panagariya points out that over the course of 2022, the rupee has depreciated by 7% against the dollar, against the euro by 13%, the pound by 11% and the Japanese yen by 16%.
In Asia, the Korean won, the Philippine peso, the Thai baht and the Taiwanese dollar all fell more against the rupee against the US dollar.
“The net result is that the rupee appreciates against all of these currencies,” he argued.
Regarding recession fears, Panagariya observed that persistent inflation at rates not seen in four decades and inflationary expectations, especially in the United States, mean that the only way for central banks to escape the consequences of inflation is to weather the recession. .
“That is, central banks must keep raising interest rates until economic activity declines and is forced to break the high-wage-high inflation cycle.
“In India, we don’t face the same problem,” he said.
Answering a question about high inflation, the famous economist said that the source of India’s inflation problem is largely external – the unprecedented spike in oil and grain prices due to the Russia-Ukraine war cause.
With the RBI raising interest rates, oil prices seeing a thaw and the latest fruits and vegetables on the horizon, he said, “We should see inflation back below 6% by the second half of the 23rd fiscal year,” he said. , as pointed out; by RBI. Governor.”
Mr. Pangariya noted that India’s inflation of 7% is above its tolerable limit of 6% under the condition that the inflation target is only one percentage point.
