Then there’s what economist Arvind Subramanian calls “a new twist in the tale.”
Even as calls grow to cut interest rates and increase liquidity, the central bank is supporting the rupee’s fall by selling dollars, which reduces liquidity. Since October RBI spent $50 billion, external from its foreign exchange reserves to protect the rupee.
Buyers have to pay in rupees to buy dollars, reducing liquidity in the market. Maintaining a strong rupee through interventions reduces competitiveness, making Indian goods more expensive in global markets, leading to lower demand for exports.
“Why is the central bank strengthening the rupee? Such policies are harmful to the economy and exports. Maybe they do it because of the optics. They don’t want to show that the Indian currency is weak,” said Mr. Subramanian, a former economic adviser. government, the BBC reported.
Critics warn that India’s “hype” as the world’s fastest-growing economy is hindering the reforms needed to boost investment, exports and job creation. “We are still a poor country. Our GDP per capita is less than $3,000, while the US has $86,000. If you say we are growing faster than them, it doesn’t make sense,” says Ms. Sengupta.
In other words, India needs a much higher and more sustainable growth rate to generate more jobs and raise incomes.
Raising growth and consumption will not be easy in the short term. With a lack of private investment, Himanshu suggests raising wages through government employment schemes to boost incomes and stimulate consumption. Others, like Ms. Sengupta, advocate lowering tariffs and attracting export investment that is shifting from China to countries like Vietnam.
The government is still optimistic Indian history, external: Banks are strong, foreign reserves are solid, finances are stable, and extreme poverty has declined. Chief Economic Adviser V Anantha Nageswaran says the latest GDP figure should not be over-interpreted. “We should not throw the baby out with the bathwater as the basic growth process remains intact,” he said at a recent a meeting, external.
It is clear that the growth rate can increase. Therefore, skepticism persists. “No nation has been so ambitious for so long without taking (adequate) steps to fulfill those ambitions,” Ms Sengupta says. “Meanwhile, the headlines say India’s age and decade – I’m waiting for that to materialize.”
