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economy | IST

SBI Conclave: As COVID retreats, inflation will be subdued, say experts

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From the sidelines of the 8th Annual SBI Banking and Economics Conclave, CNBC-TV18’s Latha Venkatesh spoke to Sajjid Chinoy of JPMorgan, Poonam Gupta, Director General of NCAER, Pulak Ghosh, Professor at IIM Bengaluru, Sabyasachi Kar, Chair Professor of RBI and Soumya Kanti Ghosh of SBI about India's growth outlook.

From the sidelines of the 8th Annual SBI Banking and Economics Conclave, CNBC-TV18’s Latha Venkatesh spoke to an esteemed panel of experts to discuss India’s growth outlook.
Latha Venkatesh was in conversation with Sajjid Chinoy of JPMorgan, Poonam Gupta, Director General of NCAER, Pulak Ghosh, Professor at IIM Bengaluru, Sabyasachi Kar, Chair Professor of RBI and Soumya Kanti Ghosh of SBI.
On inflation, Gupta said, “As we all know, these were highly unprecedented times. The consensus was to do whatever it takes to bring livelihoods back or at least support basic consumption levels. Now that the bigger challenge has been met, I think it is a good problem to have rather than a bad problem. Just think of the counterfactual that enough stimulus was not given around the world and we would not have had the kind of recovery we are seeing.”
She added, “Do I think the inflation numbers that we are seeing are going to stay with us? My sense is that as COVID retreats, as global supply chains start normalising, which they have started to do, inflation will also be subdued. In terms of the inflation dynamics, what we see in India is that neither did we have a very large stimulus, nor a problem of constrained labour supply. If we just look at the data and correlate Indian inflation with US inflation or global inflation, those correlations are very weak. We have looked at the data in many different ways -- long time series, short time series, high frequency etc. So I don't think inflation is going to be a lasting issue globally or for India.”
Chinoy said, “If you cut through the noise, what has been the big lesson… that this time is different… we are not going to make the mistakes we made in 2008, 2009 and 2010. Fiscal policy is going to be far more supportive. Adjusting for all cyclical support, the thrust was about 4 percentage points of GDP. We are seeing a paradigm shift led by what is happening in the US -- the infrastructure bill, with promise of more support in the coming months, that fiscal policy is going to remain more expansive for longer.”
He added, “Monetary policy has said we are far more tolerant of overshoots. What we will not tolerate any more is undershoots. So we don't even have to look towards decarbonisation in China. We just have to acknowledge that the support from policy -- fiscal and monetary -- in the coming years in advanced economies is going to be much greater than post the global financial crisis.”
On India’s potential growth of 7 percent, Kar said, “I will disappoint you by saying that I don't think potential growth is a very useful way of thinking about the Indian growth scenario. So the idea of potential growth comes from Western growth or US growth. So if you look at their growth time path, the GDP time path, over hundreds of years, it is almost like a straight line… you take 10 years, and you forecast for the next 90 years, you will be bang on. So basically, it is a very stable growth path based on mature institutions. That is not what we have in India.”
He added, “In India we have had periods of high growth for a few years, and then it slows down. So if you think of potential growth based on those three or four years and then you extend it just based on data, you will be wrong, and you will not be able to understand why it is broken down.”
Ghosh said, “There are challenges in terms of estimating the potential output, as they keep changing because there are time periods and business cycles that keep changing.”
On inflation, Ghosh said, “In my sense, I don't see inflation as a significant long-term threat, because I am happy that after 2000, central banks across the world -- from 2008 to 2021 -- have been trying to push the inflation rate beyond 2 percent. I don't see that sudden perennial problem.”
For full interview, watch accompanying video...