Fiscal stimulus, faster bank recapitalisation needed to return to 7% growth rate: Arvind Panagariya

India will need fiscal stimulus, lower interest rates, faster bank recapitalisation and privatisation of some PSUs to return to 7 per cent growth rate, former Niti Aayog vice chairman Arvind Panagariya said on Monday. Addressing a virtual event organised by AIMA, Panagariya further said the country lost nearly USD 125 billion in the April-June period due to the COVID-19 pandemic.

"Economy will return to a 7 per cent plus growth rate (in post COVID -19 period). For that to happen, I will pitch for a lower interest rate by the RBI. "We will need some fiscal stimulus. We will have to go for faster bank recapitalisation," the eminent economist said.

The government had in May announced a nearly Rs 21 lakh crore stimulus package to help the nation tide over the economic crisis induced by the coronavirus pandemic. "We need to privatise in a big way as well monetise roads and railways," Panagariya added.

Most rating agencies and economists have projected the country's economy shrinking this fiscal.

The ADB expects India's economy to contract by 9 per cent in 2020-21, while Goldman Sachs has pegged it at (-) 14.8 per cent. Fitch Ratings has forecast a 10.5 per cent contraction.

Panagariya pointed out that India's economic growth was slowing down even before COVID-19 hit the country because there was a lot of stress in the financial sector. "So we need to recapitalise banks now, otherwise NPAs will rise again and it will be difficult for Indian economy to grow at 7-7.5 per cent again. So, we should not commit past mistakes," Panagariya, currently a professor of economics at Columbia University, emphasised.

Talking about the farm sector, he said agriculture is important for India because too many people are dependent on it. "But agriculture cannot grow more than 4 per cent. So we need more growth in the services and manufacturing sector," Panagariya said.

India's economy suffered its worst slump on record in April-June, with the gross domestic product (GDP) contracting by 23.9 per cent as the coronavirus-related lockdowns weighed on the already-declining consumer demand and investment.

However, agriculture grew by 3.4 per cent during the April -June quarter of the current fiscal.

On trade with China, he said India will have to continue trading with the neighbouring country. "But China can't be trusted.... We should sign free trade agreements with the European Union and USA," he added.

Regarding the price rise situation, he said he is not an inflation hawk. "6-7 per cent inflation, we can tolerate, (it) is also good for the economy," he added.

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