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VIDEO – State of the Economy- with Gita Gopinath



The current video discusses the current global economy scenario and its effects on Indian Economy. The guest i.e. Ms Gita Gopinath is a professor of economics at Harvard, US.

The discussion is more about the loopholes in Indian economy and talks about the causes and remedies of current economic dip in Indian Economy.
According to the guest, current economic business cycle of US is second to the Great Economic Depression of 1929. It has taken a long time for US Economy to recover after the Lehman collapse in 2008. That recession had spill-over effect all over the world, due to the globalised world.

But Indian financial sector was well insulated owing to tight guidelines/regulations and strong fundamentals in banking sector. Add to this the progressive loosening of interest rates by the RBI and fiscal stimulus provided by the government. All these ensured that the global recession had minimal impact on India and much demand was preserved in India. On the contrary, Indian economy grew at 9% in two consecutive fiscals.
But this medicine had hidden side effects for the economy of India. Also other precautions and pre-emptive measures for the proper effect of the medicine to take place, were not taken by the government.

Elaborating this , the government provided the needed stimulus to preserve demand. But along with it, the necessary reforms in supply side to complement the increased demand were not dismal. Not only this, but the government then also plunged into policy paralysis.

The result was a dip in the economy in the following fiscals years. Following closely was the bad word ‘INFLATION’ owing to mismatch between demand and supply. Rural incomes increased culminated by big welfare programmes. Besides it, SPECULATIVE trends started. The speculative volumes of many commodities increased multi-folds, especially for the ones which can be stored. Real Estate ballooned the rates. All these forces, both domestic and world, led to this debacle.

So the main argument which our guest underlines is that :

CREDIT BOOM IS THE MAIN CULPRIT BEHIND SPECULATIONS WHICH LED TO INFLATION. Also the Supply side was not equipped to tackle such trends.

Now, the road ahead for India :

Our guest believes that India does not have to do much. Not any drastic reforms are needed, but normal reforms will do the work (they are low hanging fruits).
India just needs to get the right INVESTMENT CLIMATE created. Clearances have to roll faster. Policy Paralysis have to be reversed. Tax incentives need to be provided. Other promising advantages to invest in India have to be showcased to domestic and world players.

And all this is not only to curb the inflation, by fixing supply side Infrastructure. The current economic scenario is not sustainable. And not much time will elapse, before another round of plunge will follow, if necessary steps are not taken now.

Manufacturing Sector is the engine of any economy. Growth without secondary sector is Jobless and Unsustainable. More importantly, India has to satisfy its unique Demographic Dividend i.e. large population in bracket of 18-60. Therefore, it is necessary that investment climate becomes suitable in India. Both Political and Administrative will has be present for this to happen.