In a recent interview, TT Ram Mohan, a member of the Prime Minister’s Economic Advisory Council, shared insights on India’s economic performance, the challenges ahead, and the role of policy measures. As the country aims to achieve a $5 trillion GDP by 2027, Mohan highlights the need for realistic growth expectations, the importance of balancing monetary policy, and the challenges posed by global economic conditions.
Economic Performance in FY24:
The Indian economy has outperformed expectations in the current fiscal year, with a projected GDP growth of around 7%, surpassing earlier estimates of 6-6.5%. This commendable achievement is notable in the backdrop of a challenging global environment. Mohan emphasizes the significance of considering the growth in manufacturing and mining sectors, which is rebounding from a low base. However, it’s crucial to temper jubilation, recognizing that these growth rates are partly based on the recovery from the pandemic-induced decline in FY21.
Challenges in 2024:
Looking ahead, Mohan discusses the challenges facing India in 2024, both domestically and globally. The International Monetary Fund (IMF) projects a slowdown in global growth, influenced by various factors such as geopolitical tensions and rising oil prices. Mohan points out that India’s growth in FY25 may be impacted by these global conditions. Moreover, he highlights the reliance on government capital expenditure, indicating a need for a substantial increase in private investment to reach the desirable total investment rate of 35% of GDP.
Debt Concerns and Fiscal Policy:
Addressing concerns about India’s debt-to-GDP ratio possibly surpassing 100% by FY28, Mohan provides a nuanced perspective. While extreme stress scenarios can project such outcomes, he emphasizes the historical trend of a decreasing debt-to-GDP ratio. The crucial factor, according to Mohan, is the differential between the growth rate and the interest rate, which has remained favorable over the years. He dismisses pessimism about India’s public debt and underscores the importance of considering debt composition and a low proportion of external debt.
RBI’s Monetary Policy:
Mohan applauds the Reserve Bank of India (RBI) for its astute handling of monetary policy. Balancing growth and inflation considerations, the RBI has navigated challenges by considering global trends, particularly in the United States. Mohan acknowledges the RBI’s stance on targeting a 4% inflation rate in the long term but questions the feasibility of sacrificing short-term growth to achieve this target.
Structural Reforms for Growth:
Responding to the question about necessary structural reforms to achieve a $5 trillion GDP by 2027, Mohan emphasizes the need for clarity on realistic long-term growth rates. He acknowledges ongoing discussions on labor law amendments, land acquisition simplification, and agricultural reforms but stresses the importance of understanding the constraints imposed by the political and economic system. With a realistic growth rate of around 6.5%, Mohan suggests that many reform measures fall into place.
Focus Points for the Interim Budget:
Regarding the upcoming Interim Budget, Mohan provides insights into the Finance Minister’s cautious approach, advising against expecting anything ‘spectacular.’ While the specifics are not discussed, Mohan’s comments hint at a measured approach, considering the current economic challenges and global uncertainties.
Conclusion:
In navigating the complex economic landscape, India faces both opportunities and challenges. TT Ram Mohan’s insights shed light on the importance of realistic growth expectations, the role of private investment, and the need for nuanced policy measures. As the nation progresses towards its $5 trillion GDP goal, policymakers must consider the delicate balance between short-term imperatives and long-term sustainability.