Confident about the fundamentals of the Indian economy, Arvind Panagariya, Chairman, 16th Finance Commission and former Vice Chairman, NITI Aayog, remains optimistic about the outlook and hopes that the economy would be able to sail through the current crisis emanating from the war in West Asia.
Panagariya, who is now a professor at Columbia University also expects benefitting from the trade pacts with the UK and the EU. He also says that the lack of a trade deal with the US will not lead to any adverse impact on India’s growth. Edited excerpts:
Q: The Indian economy has been performing well, with 7.8% growth in Q1FY27 despite the West Asia war. Do you think this can be sustained?
We have sustained this growth for quite a while despite several shocks. There were at least three to four shocks since 2003-04, including the global financial crisis shock. Then in 2011-12 and 2012-13, when we were amongst the ‘Fragile Five’ economies, followed by the NPA shock and the Covid-19 pandemic.
We have continued on the growth path and progressively also tackled some of the reforms that, at one point, did not seem possible—such as the Insolvency and Bankruptcy Code, the goods and services tax, and the labour laws. If we continueon this path, we can sustain this growth. Our reform process also has been slower because of the democratic pushbacks and so our growth has not been as rapid as that of countries like South Korea, Hong Kong, Singapore, Taiwan, China.
But if one only looks at the democracies, we have beaten everyone. I don’t think there is any other democracy which has grown faster than India for sustained periods like this.
Q: Crude oil with prices over $100 per barrel remains a be big shock for India. How do you see it panning out?
Ex ante, I would have also predicted that it might shave off a percentage point of growth. But now that we have seen it, the economy has handled it quite well, and we have been able to maintain 7% plus growth, despite oil price staying high. That makes me a little more optimistic. Probably now, as far as oil is concerned, things will not get any worse. Currently, it looks like the West Asia war is not going to intensify in any major way.
Q: How do you see the trade deals India has signed helping the export sector?
It is still a little bit early, although some people say that impact is beginning to show.
In my view, the two big free trade agreements India has signed are the ones with the United Kingdom and the European Union (EU). The deal with the EU is disproportionately large but the agreement is yet to be signed. I am very hopeful that it will have a very significant impact.
Q: Have the recent concerns around the balance of payment and financing current account deficit been addressed effectively?
If you look at the current account deficit, it’s not large. It should not be a problem.
Q: US Trade Representative Jamieson Grier has said the India-US bilateral trade pact is not imminent. Does that put India at a disadvantage?
It’s status quo. It’s an advantage which would have accrued but will not accrue for now. That’s all. A lack of a deal doesn’t make things worse, but the deal would make it better. I see no adverse impact from it in terms of economic growth.
@surabhi_prasad
