Should allow gradual Re depreciation, use forex reserves judiciously: Chief Economic Advisor

“We have not faced such a situation like this in a very very long time since the end of World War II…in recent years, we have faced one element or the other…but geopolitics was not an issue, commodity prices, only energy was an issue, food prices was not an issue at that time…what we are facing now is multiple crisis at all levels.”

“…in 2022-23, compared to what we expected at the beginning of the year, yes we are going to have low growth of 6.5-7 per cent. But this compared to many other countries is a very good number and only Saudi Arabia is going to grow at a rate faster than India this year. Inflation is high but it is not high compared to other countries. Other countries had a target of 2 per cent but they have inflation of 8-10 per cent. We have a target of 4 per cent but we have about 7.4 per cent inflation rate now. So the gap between the target and reality is much lower for India than it is for advanced countries,” Nageswaran said at an event organised by industry body Indian Chamber of Commerce.

Most agencies have been lowering their growth forecasts for India in recent weeks. The Reserve Bank of India also cut its growth projection to 7 per cent from 7.2 per cent and 7.8 per cent earlier.

Nageswaran said that the country has adequate reserves to deal with capital outflows. “We should in the short run allow the rupee to depreciate gradually and we should use foreign exchange reserves judiciously, keeping the fire-power for 2023 as well…we should augment foreign exchange reserves just to keep ourselves well prepared for any contingencies in 2023 because the global environment is very risky at the moment,” he said.

On the production-linked incentive scheme, the Chief Economic Advisor said that it is likely to gain more momentum and expand to more sectors. “PLI is for the medium and long term; it is about creating capacity within India to become a global leader, to attract supply chains into India and to facilitate China-plus-one to happen. The PLI scheme is likely to gain momentum. Right now it is happening in two or three areas – mobile phones, pharmaceuticals and chemicals but it has to pick up steam in other areas as well and hopefully in the next two years it will happen,” he said.

As per the data shared by the CEA in a presentation in the online event, Rs 40,992 crore of actual investment is there for PLI schemes across 14 sectors including mobiles, pharma, medical devices, telecom and networking products among others. 606 applications have been approved which are expected to yield investment worth Rs 2.71 lakh crore and also expected to result in employment of 59 lakh people. The actual employment stands at 1.97 lakh.

For the medium term, India’s economy should grow at the rate of 6.5-7 per cent in view of deleveraging of corporate balance sheets and the government’s reform measures, he said. “Medium-term outlook is good… because of balance sheet strength, as corporates are willing to invest, manufacturing activity continues to expand and digital infrastructure (is) becoming more and more important in improving access to finance and formalisation,” he said.

While the world is facing a polycrisis, which is multiple crises of high inflation, tightening of monetary policy, high interest rates, slowdown in China which affected global supply chain, and the Russia-Ukraine war, India is doing better on both growth and inflation fronts and will reap the rewards of the hard work done over the last several years, Nageswaran said. The CEA said that India needs to maintain macroeconomic stability, continue direct tax reforms, complete ongoing capex projects in the government and continue to address the challenges faced by MSMEs.

He said the government is expected to meet its fiscal targets for this year. “At the moment our expectation is the fiscal deficit target will be met,” he said. The central government’s fiscal deficit target for this financial year is 6.4 percent of the gross domestic product. In April-September, the government’s fiscal deficit widened to Rs 6.20 lakh crore, accounting for 37.3 percent of the full-year target.