India stable, Modi's first year better than predecessors': Panagariya

Also defends Jaitley's preferred pace of fiscal consolidation

According to NITI Aayog Vice-Chairman Arvind Panagariya, the Narendra Modi-led government has effected more economic reforms during its first year in office than the previous one did in its 10 years. 

Asked if the present government could have unleashed greater reforms in the first year, Panagariya said in an interview with the Economic Times that the Modi government’s first-year record had been better than any of the previous governments. 

During the interview, the NITI Aayog chief spoke on several current economic issues, including the slowdown in China and the overvaluation of the rupee. 

On the rupee’s value, Panagariya said: “Over-valuation is difficult to define, since it must be measured in relation to some notion of an equilibrium or optimal exchange rate; that is difficult to define. But the rupee has surely appreciated against the euro and yen lately, in both nominal and real terms.”

Asked about China, Panagariya said if an economy like China experienced slowdown, the global economy would be affected too, and this could in turn have a negative effect on the Indian economy. However, he also pointed out to the possibility of minor gains, saying: “Generally, a slowdown in a large economy contributes to a slowdown in the global economy which is not good for an economy like India. That said, the Chinese slowdown could also lead to China vacating some export markets. We could emerge as the alternative, and that could work to our advantage.”

Panagariya also defended Jaitley’s preferred pace of fiscal consolidation. “The finance minister did make some compromise by extending the consolidation plan from two years to three years. This was just about the right compromise, as a large compromise would have sent a negative signal to the markets about the government’s willingness to live within its means,” he said.

Maintaining a positive outlook for the economic future of India, he said neither Greece nor a higher interest rate from the US would have a deep adverse effect on the economy. “India is well positioned to weather the headwinds that might arise out of an eventual rise in the interest rates. Our foreign exchange reserves, at nearly $355 billion, place us in a good position to deal with any situation arising out of the event.”

He, however, stressed that a keen eye on inflation would be helpful. “The Reserve Bank  could surely not take its eye off inflation. But as I have said, within the agreed range of two per cent to six per cent target range of inflation, there might now be scope for a further cut in the interest rate and that RBI will likely take the necessary action at an appropriate time,” he said.