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Prominent economist NR Bhanumurthy said on Sunday that leading indicators suggest India’s economy is on the road to recovery and is clearly emerging from the “dark clouds” caused by the COVID-19 pandemic. Bhanumurthy, currently vice-chancellor of the BR Ambedkar School of Economics (BASE), further said that in terms of the extent of the economic recovery, it could take another year to return to pre-pandemic levels.

“Based on recent trends in some of the leading indicators, there are clear positive signs and the Indian economy could clearly emerge from the dark clouds covered by the pandemic,” he said. Bhanumurthy pointed out that a leading indicator that could be taken into account is the robustness of government revenues, above budget estimates; this is something that suggests optimism in the resumption of growth in India.

India’s economic recovery is broad-based, according to the eminent economist, although parts of the service sector are still recovering largely due to severe supply-side disruptions. “But it could also be due to a second severe pandemic wave that disrupted the movement of economic agents.”

India’s economy grew at a record 20.1% in the April-June quarter, helped by a very weak base last year and a strong rebound in manufacturing and service sectors despite a devastating second wave of COVID-19. India is now on track to achieve the fastest growing in the world this year. The Reserve Bank of India (RBI) lowered the country’s growth projection for the current fiscal year to 9.5%, from 10.5% previously estimated, while the World Bank forecast that the economy India is expected to grow 8.3% in 2021.

On the stock market boom at a time when economic growth has slowed, Bhanumurthy said it’s common to say that stock markets don’t reflect the real economy.

“However, this time around, the sustained rise in stock indexes does not suggest such a disconnect,” he said.

Bhanumurthy, however, added that corrections could be seen when the world’s major central banks start to tighten when inflationary pressures build up and the same could happen in India as well.

On recent calls for the use of huge foreign exchange reserves for infrastructure development or the recapitalization of public sector banks, the economist said that reserves are largely hot money that is needed to keep the economy going. stability of the foreign exchange market. “Under such conditions, the use of reserves for specific purposes such as the financing of infrastructure or the recapitalization of public sector banks could only lead to a weakening of the external accounts”, he observed.

When asked if high retail and wholesale inflation is a concern, he said that based on recent trends in the Consumer Price Index and WPI inflation, there are divergent trends. He said that indeed permanently high WPI inflation is a cause for concern as it could impact CPI transmission even with a long lag.

Declaring that the Monetary Policy Committee effectively taking note of this matter,

Bhanumurthy said, “I hope the committee will take the necessary steps to ease inflationary pressure. ”

Regarding the government’s National Monetization Pipeline (NMP) program, he said NMP is a very good policy measure to unlock unproductive public sector entities.


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