Economy’s fundamentals strong, investment picking up: Panagariya

Panagariya, however, also emphasised 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 percent 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 in spite of a devastating second wave of Covid-19.

The Reserve Bank of India (RBI) has lowered the country’s growth projection for the current financial year to 9.5 percent from 10.5 percent estimated earlier, while the World Bank has projected India’s economy to grow at 8.3 percent 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 percent and 34.3 percent of GDP, respectively, was higher than in the corresponding (pre-Covid-19) quarters a year earlier,” he said.

To a query on foreign capital inflows, he said “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 it chooses India because of the high returns that the Indian economy promises.

On the stock market boom, 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.”