Prominent economist Arvind Panagariya said India is on course to return to a high growth trajectory and expressed confidence that the country will become the world’s third largest economy by 2027-28.
Currently, India is the fifth largest economy “so that’s another five years. We are already in (the year) 2023. So, in 2027-28, India is expected to be the third largest economy,” said Mr. Panagariya, a professor at Columbia University and former vice president of NITI Ayog. PTI in an interview in New York.
A day before Finance Minister Nirmala Sitharaman presents the Union budget on February 1, the economic survey tabled in Parliament pegged India’s GDP growth at 6.5% in 2023-24.
Union budget 2023-24 | Full text of Finance Minister Nirmala Sitharaman’s speech to Parliament
The International Monetary Fund’s World Economic Outlook update released on Tuesday said growth in India is expected to “decline from 6.8% in 2022 to 6.1% in 2023 before picking up to 6.8% in 2024. , with resilient domestic demand despite external headwinds”. Last week, the UN said in its flagship report on the state and outlook of the world economy 2023 that India is expected to grow by 6.7% in 2024, the fastest growing major economy. in the world.
Mr Panagariya said his reading of the economic study is that “the narrative emerging from it tells the story of a much stronger economy” than one growing at 6.5%.
“My feeling is that given India’s current situation, it should return to 7% plus a growth rate,” he said. He added that India is currently in a situation where it was in 2003, when the growth rate reached almost around 8% and the country has maintained this type of rate for a few years.
Outlining the reasons for the strong growth ahead, he said several reforms had been implemented and weaknesses in the economy had been cleaned up during the COVID pandemic, such as banks’ non-performing assets and weak balance sheets. many large companies.
Noting that bank and corporate balance sheets are now quite strong, he said “this is reflected in the investment proposals and investment commitments that are being made by many large companies.”
“We see this increase in public and private investment, the fact that political reforms have taken place, a lot of infrastructure has been built. And the fact that there is an effective government in place, very credible (government),” Panagariya said.
“A government that realizes its strengths and which I think is the reason why you don’t see a lot of populism in the budget, even though it is the last full budget before the legislative elections, tells you and makes me feel that India is poised to return to a high growth trajectory,” he said India is heading for general elections in 2024.
Mr Panagariya added that India “will certainly remain” the fastest growing major economy for several years to come. He predicted that India would maintain a growth rate of around 7% during these years and if the country takes steps to further open up the economy, especially on the trade front, liberalization requires “a good reduction tariffs”, then “we could easily reach 8%.
He said the “rest of the forces” to achieve this growth are present in the system. Some of the ongoing reforms need to be implemented, for example labor law reform.
“If we can do that, I have absolutely no doubt that we would maintain 7% and could in principle, I think, touch 8%. Referring to the Budget announcements, he said his expectations were “fully met”.
Regarding fiscal consolidation, the debt-to-GDP ratio had risen to around 84% as it stands now post-COVID, as spending had to be increased at the time and revenues were hit, which which led to very large budget deficits, resulting in the accumulation of debts. , he said. “So we had to go back to consolidation and the finance minister made a good effort in that direction.”
The revised estimate for 2022-23 of the budget deficit is 6.4% and the estimate for 2023-24 is now set at 5.9%.
“It’s a modest reduction in the budget deficit. But given the other features of the budget, I personally think that even this modest deficit reduction is a good signal,” Panagariya said. He added that the Modi government has been very successful in implementing large-scale and rapid infrastructure projects.
The government raised capital spending to 3.3% of GDP from 2.9% of GDP last year. “It’s really a major increase,” he said. Ms Sitharaman announced a 33% increase in capital expenditure to ₹10 lakh crore for infrastructure development for 2023-24 and will be at 3.3% of GDP.
Mr Panagariya said he suggested it was time to get personal income tax reform because the country had made reasonable progress on corporate income tax reform , bringing tax rates to more than 25%. “So this (personal income tax) was a long-awaited and important reform, so I’m very happy with it,” he said.
Budget 2023 | Income tax exemptions on high-value life insurance products will be limited
Finance Minister Sitharaman said the government has made the new income tax system more attractive to taxpayers and thus made substantial changes to its structure to benefit the middle class. The 2023-2024 budget proposed changes to the optional tax regime, which was introduced in 2020-21.
As per the changes proposed in the budget, no tax would be levied on people with an annual income of up to ₹7 lakh under the new tax regime, but it brought no change for those who continue in the old regime which provides tax exemptions and deductions on investments and expenses such as HRA.
