India’s economy is capable of accelerating to growth as high as 9 percent once the current spate of global uncertainties eases but the current restrained macroeconomic approach is a prudent one, according to Sanjeev Sanyal, a member of the Economic Advisory Council to the Prime Minister.
“These are very turbulent times, we are still generating growth rates in the 7 percent range, nothing to sniff at,” Sanyal said November 25 at the Times Now Summit. “I would put my head out and say, if we get an open road, this economic machinery that we have built is capable of generating 9 percent GDP growth rate.”
India is expected to be the fastest growth G20 economy this year despite multiple global headwinds. The country’s chief economic advisor forces a medium-term growth trajectory of 6.5 percent to 7 percent. The finance ministry is expected to table a budget that continues to push for investment led growth.
Not the time to push growth too much
The restrained macroeconomic approach adopted by the finance ministry and the Reserve Bank of India is the correct approach, Sanjeev Sanyal said.
Given that the Indian economy is growing at 7 percent despite the global slowdown, it may not be a good idea to try and push for further growth, as the difference in India’s growth rate and the world’s growth rate would ultimately show up in India’s external accounts, the PMEAC member said.
If that happens, the pace at which the country’s imports grow will outmatch the speed at which it can exports to a slowing world. This presents a macroeconomic constraint to growth, he added.
“This is not the time to try and overextend ourselves,” Sanyal said.
India’s external sector has become a cause for concern with exports shrinking on an annual basis for the first time in nearly two years and the current account deficit set to rise over the red line of 3 percent of gross domestic product.
Since the Covid-19 pandemic hit in early 2020, the government has relief on targeted relief for the vulnerable and also credit support to the worst-affected sectors. The central bank has infused hefty liquidity and slashed rates but is not on course to reversing all pandemic era easing as it seeks to curb red hot inflation.
Export, investment-led growth model
India has begun to adopt and will rely on a growth model driven by investment and export, not to dissimilar to what other countries did, the economist said.
Sanyal disagrees with the idea, partly derived from Raghuram Rajan, that India is ultimately a consumption story and should not aspire to have export- and investment-led growth trajectory.
“Sure, the period of transition will be turbulent as indeed you should expect,” he added.
Right now, the world is not going through de-globalisation but the pattern and framework of globalisation is changing, Sanyal said.
India is a beneficiary of booming services sector and is getting integrated into global supply chains, he added.