Rajan, Gopinath say India at risk if govt abandons macro-economic stability

To achieve macroeconomic stability, the nation needs to maintain low and stable inflation, Rajan and Gopinath prescribed in a report

India, one of the world’s fastest-growing major economies, risks being pushed into a crisis if the government sacrifices macro-economic stability for growth, according to economists including International Monetary Fund Chief Economist Gita Gopinath and the nation’s former central bank governor Raghuram Rajan.

To achieve macroeconomic stability, the nation needs to maintain low and stable inflation, ensure combined government budget deficit leaves room for private investment and keep a check on external-financing requirement to reduce vulnerabilities, they prescribed in a report, An Economic Strategy for India, released in New Delhi Friday.

Key Insights

This simply means India, a predominantly domestic consumption-driven economy, needs a much greater focus on macroeconomic stability than some of its Asian peers.
 

India relies on overseas money to fund investment and is vulnerable to a sudden reversal in sentiment.

A widening current-account deficit is seen as a key risk for the economy and one of the main reasons why India became a target in a global sell-off of emerging markets this year.

The rupee has lost nearly 11 percent against the dollar this year, making it Asia’s worst-performing major currency

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The 13 authors of the report include Pranjul Bhandari, chief India economist at HSBC Holdings Plc, Prachi Mishra, chief India economist at Goldman Sachs Group Inc., and Sajjid Chinoy, chief India economist at JPMorgan Chase and Co.