The government’s main focus has to be on reviving demand, the Nobel Laureate said, responding to questions on India’s economy, adding that worries about monetary balance should take a back seat.
“The Indian economy is going into a tailspin; it is the time when you don’t worry so much about monetary stability and you worry a little bit more about demand,” Banerjee said at a press conference at the Massachusetts Institute of Technology. “I think demand is a huge problem right now in the economy.”
‘Fight Over Data’
“But, nonetheless…I think even the government is increasingly recognising that there is a problem. So, the economy is slowing very fast. How fast, we don’t know — there is this dispute about data — but I think fast.”
Referring to the numbers put out by the National Sample Survey, which come out every 1.5 years and give estimates about the average consumption in urban and rural areas, he said, “…we see in that…between 2014-15 and 2017-18, that number (consumption figure) has slightly gone down. And that’s the first time such a thing has happened in many, many years. So, that’s a very glaring warning sign."
The government has a large deficit but right now it’s sort of at least aiming to please everybody by pretending to hold to some budgetary targets and monetary targets, Banerjee said.
He said he does not know exactly what to do. “That’s a statement not about what will work in the future but about what’s going on now-...that I’m entitled to have an opinion about,” he said.
Both the Bank and the Fund, in commentary alongside their downsized growth estimates, have said the main policy challenge for the country is to address the sources of softening private consumption as well as address problems behind weak investment sentiments.
Finance minister Nirmala Sitharaman had last week evaded a direct reply to a question on whether the government accepts there is an economic slowdown, and had said the government is giving relief to all sectors which need help.
Over the last one month, the government has announced several measures, including reduction in corporate tax rates and asking banks to organise loan disbursals. The government has said disbursals crossed Rs 80,000 crore in nine days.
Reserve Bank of India has cumulatively lowered the repo rate, or the rate at which it lends money to commercial banks, by 135 basis points since January with the latest 25 bps cut coming on October 4.
The central bank has also slashed its growth forecast for the country to 6.1% for 2019-20 from the 6.9% forecast in August, noting that the “continuing slowdown warrants intensified efforts to restore the growth momentum”.
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47 Comments on this Story
Harwant Singh397 days ago
My only fear is that by following advice of Dr. Abhijit Banerjee to create demand the government has directed the Banks to hold Loan Melas. So as per the reports some Rs.80,000 crores has been disbursed by the Banks in 10 days. By such apressure are we not implanting a time bomb which will explode into fresh NPA''s after a couple of years?
Sanjay Sood408 days ago
Your so called nyay is nothing but ‘alms’ to lure the people instead of promoting self respect, dignity of labour and ethical livelihood. Sorry sir, Indians have paid a huge price of living on bheekh for years and years.
Sanjay Sood408 days ago
Abhijit, please worry about your country, leave Indians to take care of their own.