Economy may need stimulus on demand side: Niti Aayog Vice-Chairman Arvind Panagariya

Economist sees growth pick up as a signal for intervention

As India’s economic growth begins to pick up, the country is going to need perhaps ‘a little bit of stimulus’ on the demand side, noted economist and former Niti Aayog Vice-Chairman Arvind Panagariya said on Saturday.

Mr. Panagariya also said that he was more worried about the general trend of rising import tariffs in India.

“Down the road, as the economy is continuing to open up, if we see that inventories are accumulating rapidly then that would be a clear sign that there is a demand deficiency problem. At that point, I think stimulus would be very useful,” he said at CII’s [email protected] virtual event.

Mr. Panagariya pointed out that even with the current level of intervention, India was staring at debt-to-GDP ratio rising from 72% to about 85% at least by the end of the current year.

“And we are going to need perhaps a little bit of stimulus on the demand side as the economy begins to pick up,” the eminent economist said.

‘Already in stress’

The Centre in May announced a ₹21 lakh crore stimulus package to help the economy tide over the crisis induced by the coronavirus and subsequent lockdowns.

Mr. Panagariya, a professor of economics at Columbia University, said the economy was in stress even before COVID-19 hit it. India’s economy grew at 4.2% in 2019-20.

He opined that a large fiscal stimulus in India would not have produced result as it has not given results in the U.S. or Europe.

“Large stimulus could help if the supply curve is positively sloped,” he argued.

Talking about the government’s ‘Aatmanirbhar’ programme, Mr. Panagariya said Aatmanirbharata (self-reliance) does not require that you got to produce everything that you consume.

“Import substitution is not a good idea.. What worried me actually, is turn in the policies that has happened three years ago and trend has not reversed itself,” he said.

Mr. Panagariya noted that he does not think that the talk of ‘Aatmanirbharata’ accelerated the process of import substitution policies.

“I don’t think since the talk of Aatmanirbharata, this has accelerated…I have heard some talk about import licensing, somebody has told me that import licensing has come back, I have not seen any reports of actual import licences having been imposed,” he said.

“Of course that [import licensing] will be complete violation of WTO norms agreement that we have ourselves signed,” he added.

Mr. Panagariya also said that he was more worried about the general trend of rising import tariffs in India.

He also noted that India is facing a strategic challenge from China because India’s economy is much smaller than China’s.

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