Renowned economist Barry Eichengreen on Monday (December 18) said he is confident that India can achieve an 8% growth rate over the next decade if the government practices fiscal restraint and private savings rates increase, providing more funds for investment in education, healthcare, infrastructure, and industry.
According to official data released on November 30th, India's economy grew by 7.6% in the September quarter, driven primarily by investments and fiscal spending, compared to 6.2% in the same period the previous year.
The Reserve Bank of India (RBi), in its recent Monetary Policy Committee meeting, raised the growth projection for the country's GDP to 7% for the 2023–24 fiscal year.
Eichengreen emphasised the significance of domestic demand and spending for India. He stated, "India is not a big-time exporter. Domestic demand and domestic spending are very important for India. So I don’t think that slow global growth will really weigh on the Indian economy."
Regarding inflation, Eichengreen believes that it won't be a decade of high inflation, citing the commitment of central banks, including the RBI and the US Federal Reserve.
While acknowledging India's high public debt, Eichengreen believes that India can manage the current situation, emphasising the need to address educational deficiencies in addition to previous efforts to improve infrastructure.
On China, Eichengreen predicts continued disappointment in economic growth, suggesting that China will contribute less to global growth, projecting a growth rate of around 4.5% in 2024.
China experienced a 6.3% growth in GDP during the second quarter, marking a modest 0.8% increase compared to the preceding quarter. However, this growth rate was slower than the 2.2% quarter-on-quarter pace observed in the first quarter.
Regarding the United States, Eichengreen expresses concerns about the Fed's optimism about overcoming inflation, citing the current rate of close to 3%. He cautiously anticipates a soft landing for the US economy in 2024 but acknowledges that there is no guarantee, only hope.
Eichengreen predicts that interest rates in the United States will remain high for an extended period. He suggests that the Fed may cut rates less than market expectations unless a recession occurs in 2024.
In a scenario of a soft landing for the US, Eichengreen speculates that the Fed might cut rates only twice in the following year.
On Wednesday, December 13, the US Federal Reserve opted to maintain its key interest rate for the third consecutive time. This decision signals a potential conclusion to the recent series of rate hikes, which has been the swiftest in four decades, undertaken to combat persistently high inflation.
Additionally, the Fed's policymakers indicated their anticipation of implementing three quarter-point reductions to their benchmark interest rate in the upcoming year. This projection contrasts with the expectations of financial markets and certain economists, who foresaw a total of five cuts.
Watch the accompanying video for the entire conversation.
First Published: Dec 18, 2023 9:21 PM IST
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