India may need stimulus on demand side as growth begins to pick up: Panagariya

As India's economic growth begins to pick up, the country is going to need perhaps ''a little bit of stimulus'' on the demand side, noted economist and former Niti Aayog Vice-Chairman Arvind Panagariya said on Saturday.

As India's economic growth begins to pick up, the country is going to need perhaps ''a little bit of stimulus'' on the demand side, noted economist and former Niti Aayog Vice-Chairman Arvind Panagariya said on Saturday. Panagariya also said that imposing import licensing will be a violation of WTO norms that India has signed. "Down the road, as the economy is continuing to open up, if we see that inventories are accumulating rapidly then that would be a clear sign that there is a demand deficiency problem. At that point, I think stimulus would be very useful," he said at CII's India@75 virtual event. Panagariya pointed out that even with the current level of intervention, India is staring at debt-to-GDP ratio rising from 72 per cent to about 85 per cent at least by the end of the current year. "And we are going to need perhaps a little bit of stimulus on the demand side as the economy begins to pick up," the eminent economist said. The government in May announced nearly Rs 21 lakh crore stimulus package to help the nation tide over the economic crisis induced by the coronavirus and subsequent lockdowns. Panagariya, a professor of economics at Columbia University, said the country's economy was in stress even before COVID-19 hit it. India's economy grew at 4.2 per cent in 2019-20. He opined that a large fiscal stimulus in India would not have produced result as it has not given results in the US or Europe. "Large stimulus could help if the supply curve is positively sloped," he argued. Talking about the government's ''Aatmanirbhar'' programme, Panagariya said Aatmanirbharata (self-reliance) does not require that you got to produce everything that you consume. "Import substitution is not a good idea.. What worried me actually, is turn in the policies that has happened three years ago and trend has not reversed itself," he said. The eminent trade economist noted that 'Aatmanirbharbharata' would be one where government doesn't have to run DBT programmes anymore.

Panagariya said that he does not think that the talk of ''Aatmanirbharata'' accelerated the process of import substitution policies. "I don't think since the talk of Aatmanirbharata, this has accelerated...I have heard some talk about import licensing, somebody has told me that import licensing has come back, I have not seen any reports of actual import licences having been imposed," he said. "Of course that (import licensing) will be complete violation of WTO norms agreement that we have ourselves signed," he added. Panagariya also said that he was more worried about the general trend of rising import tariffs in India. He said increasing tariffs would encourage micro and small firms to remain as it is since their domestic market will be assured.

Panagariya said imports and exports move in the same direction if you see their long time series. He also noted that India is facing a strategic challenge from China because India's economy is smaller than China's. "The gap between the two is too enormous. Chinese economy is five times bigger than India's and such even if China's grows at 3 per cent India will have to grow by 15 per cent," he stated.