The World Bank recently lowered India’s growth forecast from 8.2 per cent to 6.8 per cent for the current financial year. Kalpana Kochhar, its chief economist for the South Asia Region, tells Parnika Sokhi there is need for consistent monetary and fiscal policies to boost investments and growth, besides economic reforms. Edited excerpts:
Core inflation continues to stay high, despite a series of policy rate increases by the Reserve Bank of India (RBI). What is your projection on inflation and policy rates?
Inflation reacts with a lag. There was a long period in which inflation and inflationary expectations were built up and it is going to take a while to break that. That is why I think RBI has maintained its stance on interest rates and will wait till inflation comes down. My expectation is, with growth weakening, you could see inflation also coming down. I can’t comment on when rate cuts will begin but it will probably be a much easier balancing act, going forward, between growth and inflation for RBI.
What more do you think is needed to contain inflation?
Consistent fiscal and monetary policy. You can’t have monetary policy trying to reduce aggregate demand while you have fiscal demand putting in aggregate demand. If you are concerned about inflation, all the macroeconomic policies should be working in the same direction.
The World Bank has put emphasis on infrastructure growth in India but the country is facing delays in projects for a number of reasons. Has it also impacted Bank-funded projects?
The projects funded by the World Bank are going well but overall infrastructure developments in India need to speed up, irrespective of whether these are funded by us or not. As you know, the power sector is under much constraint and that is where activity really needs to pick up. The government has put emphasis on it but has, unfortunately, run into problems which they haven't been able to solve. There needs to be quick resolution on power supply, coal supply, electricity boards and their financial condition. There has to be resolution of issues like pricing of power. I think the solutions to these are well known; it is just the question of having the will to implement.
In the current financial year, what has been a major contributor to growth in India?
Strong rural consumption has been the major driver but investments have slowed. I think this year’s growth will be around 6.8-7 per cent.
What is your projection for growth in India in the next financial year?
We expect growth of 7.5 per cent, which could be higher if investment picks up, and that is going to be the key driver. It depends on reforms, which if implemented could boost investments.