India economic growth 'extremely fragile', needs all support: RBI MPC member Varma

New Delhi: India's economic growth is now 'extremely fragile' and needs all the support that it can get, as private consumption and capital investment are yet to pick up, RBI Monetary Policy Committee (MPC) member Jayanth R Varma said on Friday.

Varma further said out of the four engines of growth for the economy, exports and government spending supported the Indian economy through the pandemic, but other engines need to pick up the baton now.

" I like to think in terms of the four engines of growth for the economy: exports, government spending, capital investment and private consumption.

"...while exports cannot be the main driver of growth because of the global slowdown, government spending is necessarily limited by fiscal constraints," he said.

Observing that experts are waiting for many years for private investment to pick up the slack Varma said that concerns about future growth prospects appear to be deterring capital investment.

"The critical question is whether the fourth engine of private consumption will remain buoyant after the pent-up demand dissipates over the coming months.

"I, therefore, fear that economic growth is now extremely fragile and needs all the support that it can get," he said.

Earlier this month, the RBI revised its growth estimate for FY23 to 6.8 per cent from the earlier 7 per cent, while the World Bank revised upwards its GDP growth forecast to 6.9 per cent, saying the economy was showing higher resilience to global shocks.

Varma, a professor at the Indian Institute of Management (Ahmedabad), however, asserted that India does not face a threat of recession unlike many other countries of the world.

"In fact, the Indian economy is faring better than most other large economies in the world today," he said, adding that the problem is that India's aspiration level is also higher, particularly after two lost years due to the pandemic.

Varma pointed out that India is enjoying the benefits of a demographic dividend, and it, therefore, needs high growth to provide employment opportunities for the young people joining the workforce.

"I do not fear that India will grow slower than the rest of the world. I fear that we may grow slower than our own aspirations and our own needs," he said.

Replying to a question on inflation, Varma said his personal view is that one of the reasons the RBI failed to contain inflation within its tolerance band for 10 months, was because the MPC consciously prioritised economic recovery over inflation during the pandemic.

"Given its dual mandate to maintain price stability while keeping in mind the objective of growth, I think this was the correct response to a once in a century pandemic," he opined.

According to Varma, by mid-2021, the COVID-19 pandemic had ceased to be an economic catastrophe while remaining a health tragedy, and this was the right time to begin the normalisation of monetary policy.