RBI Member stated, “Despite an unfavorable global environment, the Indian economy has begun to thrive”

According to RBI Monetary Policy Committee (MPC) Member Ashima Goyal, the Indian economy has begun to do well despite an unfavourable global environment, as the Modi-led government executed many reforms during the last nine years, leading in improvements in key macroeconomic indices.

However, Goyal cautioned that there is still a long way to go until India realizes its full potential.

Read more :Unemployment rate among graduates under 25 years of age reached a staggering 42 % post-Covid

Goyal was questioned how she would compare the ten-year record of the UPA government (2004-14) to the nine-year performance of the Modi-led NDA government.

She said that the (Modi-led) NDA faced double deficits (high fiscal deficit alongside a substantial current account deficit), high inflation, and weak banks, but that they have fixed all of these and undertaken other reforms so that the economy is now doing well even in an unfavorable global context.

In May 2014, Prime Minister Modi took office for the first time. In the 2019 Lok Sabha elections, Modi headed the Bharatiya Janata Party (BJP) to a majority of its own.

GDP Subject to seasonal and base influences

In response to some US-based economists' claims that India overstates economic growth, Goyal stated that it is ludicrous to overestimate quarterly figures that are subject to seasonal and base influences, as well as measurement difficulties.

"Q1 growth is high due to the base effect of a sharp drop in growth to -23.2 in Q1 FY21 due to the pandemic." She added that growth recovered to 21.6 in Q1FY22, 13.1 in Q1FY23, and 7.8 in Q1FY24.

India reported 7.8 percent GDP growth in April-June 2023-24, the highest in the previous four quarters, last month.

While noting that the similar annual rates of growth in the previous three fiscal years were -6.6 percent, 9.1 percent, and 7.2 percent, she stated that the base effect is gradually diminishing, but that this does not imply that growth is slowing.

All kinds of data indicators point to healthy growth, she said, adding that yearly growth of more than 6% is great during a worldwide slump.

Noting that some Indian-origin economists in the United States had argued that the decline in Indian growth in the 2020s was due to fundamental problems that still exist, Goyal stated that India's powerful post-pandemic recovery has proven them incorrect.

According to her, if there had been fundamental issues, India would not have fared so well in the face of ongoing global shocks.

Covid pandemic effect on growth numbers is witnessed

They (US-based economists) are again putting more efforts in quarterly growth rates, she said, adding that due to the epidemic, as better data has come in, growth rates have been revised upwards, not downwards, as they expected.

The famous economist claimed that Indian growth is sustainable due to the increasing economic diversity, resilience, strength, and efforts of so many Indians, as well as the policy that smoothens shocks.

Last week, the Finance Ministry also ignored the criticism of inflated GDP, stating that it has consistently used income side estimates to calculate economic growth and that numerous global agencies have revised their forecasts upwards after seeing the first quarter data.

The critics, according to the ministry, should have examined other data such as purchasing managers' indexes, bank credit growth, increases in capital investment, and consumption trends to gauge growth.

a few days ago, Chief Economic Advisor V Anantha Nageswaran rejected critique of "statistical discrepancy" in first-quarter GDP data, claiming that when the same statistical authority reported the worst contraction in a decade in the first quarter of 2020, the skeptics called it credible because it fit their narrative.

According to the Income or Production Approach, India's real GDP growth in Q1 FY24 was 7.8 percent year on year.

Former Chief Economic Advisor Arvind Subramanian has claimed in an article that India's GDP is calculated from the expenditure side rather than the production side.

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