India's GDP to rebound to over 7 per cent in 2-3 years: Arvind Mayaram
Cairns: India is following economic growth inducing policies and is confident that the GDP will rebound to over 7 per cent in 2-3 years, Finance Secretary Arvind Mayaram said on September 18, while emphasising that business confidence is back.
Making an intervention during the G20 Deputies Meeting here, Mayaram said the Indian Government announced a slew of policy reforms and Budget reflected this in full measure. "From 4.7 per cent growth in the last fiscal, the Indian economy grew by 5.7 per cent in Q1 of the current financial year 2014-15. Business confidence is back and even though still tentative, growth in industrial sector, specially manufacturing, is showing an uptick. "We are confident that by pursuing growth inducing policies, the Government would contribute fully to going back to a +7 per cent growth within two to three years," he said.
He further said the policies pursued by the Emerging Market Economies (EMEs) to bring growth back have been effective and India stands committed to the incremental 2 per cent growth in the global GDP. Mayaram, however, pointed out that while it would be imperative for the EMEs including India to continue the path of structural reforms, the uncertainty and volatility in external environment is worrisome and needs the attention of the G20.
"As the US Fed withdraws from unconventional monetary policy, there will be an overhang on asset prices in the Emerging Markets and therefore, volatility in the currency markets," he said. The decision on the exit from the Quantitative Easing (QE) programme that came in after the US FOMC (Federal Open Market Committee) meeting yesterday had an impact on the currency markets of many of the emerging market economies.
"The strength of G20 lies in taking international collaborative actions and not limiting to the individual country growth strategies. This concern was also raised by Mexico," the Secretary said. Mayaram said the as discussions are taking place on domestic policies and actions, "we should also be discussing" G20 driven collaborative solutions which would reduce the impact of the possible near term repricing. While countries would have to take actions commensurate with the space available to them, as IMF has themselves noted, macro prudential policies would be ineffective during downswings, he said.
In many of the countries, Mayaram added, the asset repricing would result in pressure on their currencies, leading to a spiral of tightening and derailing of all well laid growth strategy road maps. "So, in order to ensure that the growth outcomes are still achieved, are there solutions that G20 can explore? Are swap lines a solution? Let us get the IMF to analyse whether it is so," he said, adding IMF are good at scenario analysis.
He opined that if an analysis can be made on loss of GDP in the face of exogenous shocks, but with swaps in place and in the absence of swaps, it would be useful. The official also suggested that the IMF can also be asked to look at the cost of the swap and compare those to the benefits.
Mayaram further said it was possible that the swap facility may never be used as it more of a confidence building measure, rather than actual ammunition. The benefits to the global financial system could potentially be large as it would reduce the amount of self-insurance that countries need to do. "At the same time, if the swap facilities do get used, the benefits would include a reduction in the negative shock to EM and global GDP," Mayaram added.
