The Morning Brief Should we re-examine India’s ‘Growth Story’?
Dec 3, 2024
In this discussion, Ashima Goyal, a renowned economist and former RBI Monetary Policy Committee member, delves into India's economic challenges. She unpacks the factors behind the recent slowdown, including high real interest rates and stagnant manufacturing. Topics such as the impact of food prices on inflation and the need for better fiscal strategies are highlighted. Goyal emphasizes the importance of learning from past patterns and suggests a rethink of the nation’s growth trajectory to stimulate private consumption and investment.
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Interest Rates and Slowdown
- High real interest rates have slowed India's economy, especially in interest-sensitive sectors like manufacturing and construction.
- This slowdown mirrors a similar situation in the 2010s, suggesting a missed learning opportunity.
Missed Counter-Cyclical Opportunity
- Counter-cyclical policies, where domestic demand is stimulated during global volatility, proved effective after the pandemic.
- However, this approach wasn't maintained, contributing to the current slowdown.
Combined Tightening Effect
- While necessary, prudential macroeconomic tightening coincided with reduced government spending during an election year.
- This combined tightening effect, rather than a counter-cyclical monetary response, further dampened economic activity.