Foolish to compare Sri Lanka’s economic situation with that of India: Arvind Panagariya

Sri Lanka is in the grip of a severe economic crisis and India has been at the forefront of extending economic aid

Sri Lanka is in the grip of a severe economic crisis and India has been at the forefront of extending economic aid

Former NITI Aayog deputy chairman Arvind Panagariya said on July 31 that it would be ‘foolish’ to compare Sri Lanka’s economic situation with that of India, although lessons can be learned from the crisis. in the island nation.

Mr. Panagariya, in an interview with PTI Furthermore, since the balance of payments crisis of 1991, successive governments have managed the macroeconomics conservatively.

He pointed out that in the case of India, budget deficits were not allowed to spiral out of control, the exchange rate was allowed to depreciate to keep the current account deficit low, monetary policy was brought under control to keep inflation at a low level and the opening up of financial capital flows was done in a calibrated manner.

“It’s a silly comparison…suggestions of any parallel between India and Sri Lanka are currently laughable,” Panagariya said, adding that India has rarely borrowed abroad to fund its deficit. budgetary.

The eminent economist was asked to comment on former Congress President Rahul Gandhi’s statement in which Gandhi denounced the Modi government over rising inflation and unemployment and said India was a lot like the Sri Lanka and that the Center should not distract people.

Sri Lanka is in the grip of a severe economic crisis and India has been at the forefront of extending economic aid to Sri Lanka.

Mr. Panagariya said: “We must surely learn from the Sri Lankan experience for our future macroeconomic management. This is the main relevance of events there for India. Responding to a question on unemployment, Mr. Panagariya, professor of economics at Columbia University, said that India’s problem is not unemployment; rather, it is underemployment or low-productivity employment.

“We have to work on creating well-paying jobs for the masses,” he said, adding that the unemployment rate, even in the Covid year 2020-21, had fallen to 4.2% against 6.1% in 2017-18.

The prominent economist noted that those who pushed an outcry at the 6.1% rate in 2017-18 are now completely silent on the unemployment rates reported by the Periodic Labor Force Survey (PLFS).

On questions raised by some experts on India’s official data on a range of topics, he said the country’s GDP, PLFS and vital statistics collection are doing well in international comparisons.

“There are real criticisms that need to be addressed. We definitely need to invest a lot more in overhauling our data collection,” he noted.

That said, Mr Panagariya said “we must also expose and reject many reasoned criticisms”.

For example, according to him, those like The Economist and The New York Times that provide the alternative estimates of Covid deaths in India must apply higher standards to the evaluation of their own (very flawed) methodologies.

When asked if he thinks the Indian economy is in a better position than it was eight years ago, he replied: “You can look at any indicator you like: per capita income, poverty, life expectancy, nutrition and infant mortality. see an improvement in each of these indicators.”

Responding to a question about the Indian rupee weakening to a record low, Panagariya said rising interest rates in the United States had led capital out of emerging markets and Europe to the United States. -United.

“This has led to a depreciation of almost all major currencies against the dollar. The rupee is not unique in this regard,” he said, adding that the rupee has depreciated less than most. other currencies, partly due to strong government intervention. RBI.

Mr Panagariya pointed out that in 2022, the rupiah has depreciated by 7% against the dollar, in comparison, the euro is down 13%, the pound sterling is down 11% and the Japanese yen is down 16%. .

Also in Asia, the South Korean won, Philippine peso, Thai baht and Taiwanese dollar all fell more than the rupee against the US dollar.

“The net result is an appreciation of the rupee against all these currencies,” he explained.

On fears of economic recession, Mr. Panagariya observed that persistent inflation at rates not seen in four decades and entrenched inflationary expectations, particularly in the United States, mean that the only way for central banks to curb inflation is to go through recession.

“That is, central banks must continue to raise interest rates until economic activity declines and forces a break in the cycle of high inflation-high wages-high inflation.

“In India, we don’t face the same problem,” he said.

Responding to a question on high inflation, the eminent economist said that the source of India’s inflation problem is largely an unprecedented sudden rise in oil and grain prices triggered by the Russian-Russian war. Ukrainian.

With the RBI raising interest rates, oil prices seeing some thaw and the final fruit and vegetable harvest approaching, he said: “We will see inflation return to below 6% by the second half of FY23 as highlighted by the RBI Governor. .”

Pangariya noted that India’s inflation at 7% exceeds its tolerance limit of 6% under inflation targeting by just 1 percentage point.

Comments are closed.