India’s economic recovery from COVID-19 is progressing well, with better-than-expected growth rates, and the trajectory will continue, but persistently high oil prices may play spoilsport, the eminent said on Sunday. economist Ashima Goyal.
Goyal, who is also a member of the RBI’s Monetary Policy Committee (MPC), further said that inflation, which remained well within the central bank’s tolerance band, was also showing signs of moderating as supply conditions were lessened because there was no oversupply, unlike many Western countries.
“India’s economic recovery from COVID-19 is progressing well, with growth rates better than generally expected. Higher growth is not just due to a base effect, as India’s growth in 2021 exceeds that of many countries, which had worse growth declines in 2020,” she told PTI in an interview.
According to Goyal, this indicates the continuation of reforms in India as well as good macroeconomic policies.
She pointed out that India’s sharp drop in growth during the first lockdown received a lot of negative publicity, but January’s IMF growth figures for 2020 and 2021 show that many countries are worse off.
Asked about the impact of the Ukrainian crisis on the Indian economy, the prominent economist replied: “The recovery will continue, but high oil prices could lead to some moderation in growth”.
Asia’s third-largest economy is expected to grow 8.9% in the fiscal year ending March 31, slower than the 9.2% previously forecast, according to recent government data.
Noting that the budget this time was based on cautious assumptions, tax revenues are strong and the process of divestment is underway, she said, “so the impact may not be major.”
According to Goyal, the slowdown in investment and growth that the economy has suffered over the past decade is due to the fact that politics has not been able to cushion external shocks.
“Right now, monetary and fiscal policy has some leeway to mitigate the oil shock in a coordinated way,” she said, adding that it should be used to support the cycle of domestic investment and the resulting job growth.
Goyal suggested that it is important to avoid overreaction and excessive volatility in rates and responses.
Responding to a question about high oil prices, she said crisis-related oil price spikes have often been sharp and brief in the past.
“The tax authorities have space…Taxes were increased when oil prices fell and can be reduced now. If oil prices hold, burden sharing can be imagined,” Goyal suggested.
She stressed that priority should be given to measures to green the economy in the long term to reduce dependence on imported oil.
Asked if the spike in edible oil and crude oil prices due to the Ukraine crisis might force the RBI to raise its inflation forecast, she said the central bank’s inflation projection is based on the assumption that the average price of oil for the year will be 80 USD.
“Therefore, if oil prices persist above this level for a few months and there is a domestic pass-through, inflation expectations will rise,” Goyal said.
According to her, international oil prices affect the wholesale price index (WPI), but it is domestic oil prices that have an impact on the overall consumer price index (CPI), the objective of RBI inflation.
“And there is policy space to moderate domestic oil prices. Therefore, we need to watch developments,” she said.
The retail inflation rate exceeded the RBI’s 6% upper tolerance limit for the first time in seven months in January, while the wholesale price index remained in double digits for the 10th consecutive month.
On February 10, the Reserve Bank of India (RBI) had lowered the inflation outlook to 4.5% for the next financial year, against 5.3% for the current year.
Regarding the weakening of the Indian Rupee, Goyal pointed out that the proven policy of the RBI is to intervene in the event of excessive volatility in the foreign exchange markets.
“Certain fluctuations in exchange rates encourage hedging and prevent companies from taking excessive currency risk. To ensure that foreign capital shares the risk of outflows, it is good for the rupee to fall during times of risk and global outflows “, she said.
But at some stage, the RBI may start buying the cheapest rupee.
“Some of the large reserves built up during periods of excess inflows need to be used during outflows,” she said, adding that over time the market-determined real exchange rate is expected to remain at low levels. consistent with a sustained current account deficit.
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