Indian economy: resumption of investments in the old economy; Decent growth expected for FY 23: Jayanth R Varma


Prominent economist Jayanth R Varma on Sunday expressed hope that in a few quarters, capital investment would start to pick up even in the old economy, and said the next fiscal year is also expected to see decent growth.

Varma, who is also a member of the Reserve Bank’s Monetary Policy Committee (MPC), said in an interview with PTI that inflation is a concern, but so far it’s the persistence of l inflation rather than its level which is a matter of concern.

“I am quite optimistic about the Indian economy and its growth prospects… Next year (2022-2023) should also see decent growth,” he said.

The pre-pandemic level of economic activity has already been surpassed, Varma said, and the remainder of this fiscal year is also expected to see another upturn.

He noted that the 2021 calendar year saw dozens of new economy companies receiving significant funding in both the private and public equity markets and that these companies would also have positive spillover effects on the market. rest of the economy.

“I hope that in a few quarters capital investment will also start to pick up, even in the old economy,” said the eminent economist.

Asked about the threat the new COVID variant poses to the economy, he said the Omicron variant creates uncertainties, but he believes the world is slowly starting to live with the Covid-19 virus.

“We should expect more new variants of the virus to emerge, but as vaccine coverage improves, the virus becomes less dangerous,” he said, adding that health precautions like masks and Social distancing has become ingrained in “our habits and in organizational systems.” and process ”.

As a result, Varma said most sectors of the economy are now able to operate with minimal risk to employees and customers.

“This reduces downside risks to economic growth,” he observed.

The potentially more contagious new variant B.1.1.529 was first reported to the World Health Organization (WHO) from South Africa on 24 November and has been designated as a ‘variant of concern’ by the global body, which named it “Omicron”.

The Reserve Bank of India (RBI) has lowered the growth projection for the current fiscal year to 9.5%, from 10.5% previously estimated, while the IMF has forecast growth of 9.5% in 2021 and 8.5% next year. .

Regarding high inflation, Varma pointed out that a few months ago, CPI inflation broke the upper tolerance range of 6 percent, but more recently the CPI has positioned itself well in the fork.

The worry, he said, is that inflation will not drop to the 4% target and may stabilize at 5% for too long.

“The rise in core inflation as well as WPI inflation suggest that CPI inflation could remain high until 2022-2023.

“I think that monetary policy must be aware of this risk and that we must be ready to prevent such an outcome,” he said.

Retail price inflation peaked at 4.91% in three months in November, mainly due to higher food prices, while wholesale price inflation peaked from more than a decade to 14.23%, mainly due to the tightening of prices. mineral oils, base metals, crude oil and natural gas.

Responding to a question on cryptocurrencies, Varma said he believes that a strong and confident country like India shouldn’t be afraid of cryptocurrencies.

“Properly regulated cryptocurrencies pose no threat to a country with sound economic management and well-functioning regulatory frameworks. There is therefore no case for a ban, ”he said.

Noting that cryptocurrencies, like any other financial product, pose problems of investor protection, he said, “it is necessary to have a strong regulatory regime to deal with them.”

Regulators around the world have developed mechanisms to manage these risks, Varma said, and India should follow this path as well.

India is considering tabling a bill in Parliament to address the challenges posed by unregulated cryptocurrencies. Currently, there are no specific regulations or prohibitions on the use of cryptocurrencies in the country.

Asked about the impact of ‘taper tantrum’ or the withdrawal of monetary stimulus by the US Federal Reserve on India, he said the Indian economy is much more resilient on the external front than it is. was in 2013.

“I expect monetary policy to be able to focus on domestic policy imperatives; we can well afford to let the exchange rate be determined by market forces, ”said Varma.

Varma believed that in any case, using the interest rate to achieve an exchange rate target would be inconsistent with the inflation targeting framework that is in place today.

The tantrum tapping began in mid-2013 when the Fed hinted it would reverse its accommodative monetary policy.


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