Modi should take more risk on the fiscal deficit side to boost India’s long-term growth: Jim O'Neill
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Synopsis
Jim O'Neill says Modi should take more risk on the fiscal deficit side to bolster India’s growth.
With some important caveats, I think we kind of know better how to navigate things with some very good examples of how to get out of it. That only happens with the vaccine. You point to these monthly data of April showing a 20% GDP decline. It is not really news in my opinion because we have known ever since China back in February that if we have a severe lockdown that is what happens. So there is a lot of focus lying in the western medians. I do not really think it is interesting.
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Now that we are actually number four in the number of cases, does this once again put into the spotlight the kind of risks for the Indian economy, our ability to handle a crisis of this magnitude? We are doing all we can and we know that the government has been attempting all efforts and our recovery rates are very high but we are still in the top five amongst the world.
Without wanting to resurrect the controversy surrounding what I said, as weeks go by, part of the complexity of this pandemic is for those societies where you have thousands of people living in very close proximity and find it impossible to socially distance. How do you stop the pandemic from spreading? India is in a very tricky position and that is what I originally meant. I think it raises some really important long-term strategic issues for Indian society and policymakers but in particular it should add to a lot of longer term focus on the quality of how one can live one’s daily life in terms of the sort of housing and accommodation people can move in but also the attention given to India’s health and education systems which I think are so important.
I have written about this in the past few weeks if you look at indices of sustainable economic developments which I used to do in my days as chief economist with Goldman Sachs. It is not surprising to see that the countries that score the highest on these indices are the ones that are coping the best with this pandemic and it highlights the need for countries to spend wisely on more inclusive growth and better facilities relating to things ranging from education and housing.
I am in the spirit of never letting a crisis go to waste and it is not risk-free. But if I were one of Modi’s closer advisors, I would be encouraging him to take a bit more risk on the fiscal deficit if it was going to be doing the things to boost India’s long-term growth potential, in particular spending on health and education. The only way countries can prepare themselves for the future for these kind of things is by the whole population really understanding what is necessary and how to cope with these kind of issues and how to improve the health system that is there in India for 1.3 billion people; rather than just the very privilege that get access to it because they have the money as well as much better social housing. I think it would be very wise for India to spend more on that. For smaller emerging economies, all those with more recent history of considerable financial difficulties, do not have those jumps that India could probably get away with and I certainly would do that if I was an Indian policymaker.
Stocks Recommendations
There are deferring views coming in from rating agencies. Some feel that India has not done enough; some have been very positive on the reforms and feel that India will actually survive this. Which side of the fence do you feel we are on currently?
First off all, the rating agencies with all respect for what they do. I think there is some kind of danger that countries become obsessive about what the rating agencies are going to say and obviously it is important because it affects the credit rating and ability to borrow. But I would concentrate on dealing with whatever the right thing is because the rating agencies often end up being a lagging indicator rather than a leading indicator. I think it is important to focus on what I can do as a policymaker with the reality of this crisis to permanently improve my country that otherwise I could not. And in that sense I would be in the camp of taking more calculated risk all the way to put in more classic economic terminology and I would put fiscal spending into the spending for investments and spending for consumption and I think things to do with health and education and to some degree housing. Seeing the kind of investment spending, a smart rating agency should not worry about that.