PremiumIndia needs to maintain low and stable inflation, ensure government budget deficit leaves room for private investment and keep a check on external-financing requirement: Report
New Delhi: India, one of the world’s fastest-growing major economies, risks being pushed into a crisis if the government sacrifices macro-economic stability for growth, according to economists including International Monetary Fund chief economist Gita Gopinath and former Reserve Bank of India governor Raghuram Rajan.
To achieve macroeconomic stability, the nation needs to maintain low and stable inflation, ensure combined government budget deficit leaves room for private investment and keep a check on external-financing requirement to reduce vulnerabilities, they prescribed in a report, ‘An Economic Strategy for India’, released in New Delhi Friday.
Key insights
This simply means India, a predominantly domestic consumption-driven economy, needs a much greater focus on macroeconomic stability than some of its Asian peers. India relies on overseas money to fund investment and is vulnerable to a sudden reversal in sentiment.
A widening current account deficit is seen as a key risk for the economy and one of the main reasons why India became a target in a global sell-off of emerging markets this year.
The rupee has lost nearly 11% against the dollar this year, making it Asia’s worst-performing major currency.
Some highlights
India’s aggregate fiscal deficit (federal plus states) is still close to 6.5% of GDP, higher than almost any in the G-20. Investment rate has fallen sharply in recent years. External financing requirement (as measured by the current- account deficit) increased appreciably earlier this year, increasing vulnerability.
Other authors
The 13 authors of the report include Pranjul Bhandari, chief India economist at HSBC Holdings Plc, Prachi Mishra, chief India economist at Goldman Sachs Group Inc., and Sajjid Chinoy, chief India economist at JPMorgan Chase and Co.
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