Late Monday, the government announced appointment of PMEAC Member Ashima Goyal, Shashanka Bhide, Senior Advisor, National Council for Applied Economic Research and Jayanth Verma, Professor, Indian Institute of Management, Ahmedabad to the Reserve Bank of India's (RBI) panel that sets interest rates.
In August this year, in an interview given to The Wire , Ashima Goyal, a member of the Prime Minister’s Economic Advisory Council (PMEAC), said it is possible that India GDP could grow by one per cent in this financial year. Goyal put the range between plus one and minus 3 per cent.
Her words surprised many. By far, this was the most optimistic GDP growth forecast by any economist for this fiscal year. Almost all other economists had predicted a sharper contraction for Indian economy this fiscal year. To give an example, Sajjid Chinoy, another PMEAC council and J P Morgan’s Chief India Economist, is of the view that the economic growth contraction for the ongoing fiscal year will be in the range of 5-7 per cent.
But Goyal spoke in a different tone.
As Goyal joins as a monetary policy committee (MPC) member, the MPC is getting a seasoned economist who has always advocated a pro-growth and largely pro-government stance. Goyal is also one of the rare economists who has hailed the government’s Rs 20 lakh crore economic package. Goyal, in the same interview, argued that the actual stimulus amounts to around 4 per cent of the GDP whereas almost every other economist strongly argued that the package doesn’t amount to more than 1 per cent of the GDP.
Goyal has broadly taken a view that MPC should go for sharper rate cuts to revive the aggregate demand and the lager economy. In December 2017, Goyal, who was already one of the advisors to PM Modi, had said that the RBI’s tendency to overestimate inflation and reluctance to cut rates, has cost the economy dearly. “Their view of the economy doesn’t seem to be correct," and by keeping rates high, they “have imposed a high output sacrifice," Goyal had said.
Later, in December, 2019, in another interview to the Economic Times, Goyal described the RBI’s decision to keep rates unchanged as “shocking”. “They have the space, we have seen a sharp fall in growth but they chose not to act,” Goyal said then.
Nomura, in a note on 6 October highlighted that Goyal’s views place her firmly in the “dovish camp”. More recently, in August 2020 (when the MPC voted for a pause), she reiterated the need for more policy easing and to look through high inflation and focus on reducing yields. She has also previously advocated tweaking the reverse repo rate to nudge banks towards lending and has argued for the RBI to be a “fast acting lender of last resort ” in credit markets to address financial stability, Nomura said.
Nomura placed Jayant Varma in the “in the ‘neutral-to-dovish’ camp” and Shashanka Bhide in the “neutral” camp taking into account their recent views on monetary policy.
The other two members on MPC-- Shashanka Bhide, Senior Advisor, National Council for Applied Economic Research and Jayanth Varma of IIM Ahmedabad are relatively low key. Bhide has been a strong proponent of agri reforms in India. He has focused on the sector for long and has strongly advocated measures to push demand for agri products through a reformed policy approach besides increasing investments in the sector substantially.
In an interview given in 2016 to a website , Bhide said that the expectation and dependence on agriculture sector being a major job creator needs to change. Also, high dependence of agriculture on seasonal rains and small landholdings are acting as a drag on the progress of the Indian farm sector, Bhide has said.
Varma has been writing on financial markets as well as on banking sector. In the recent past, Varma has written that bankruptcy is a form of protection for firms that are unable to pay their debts on time, and not a punishment for past sins. “As such, during bad times, we need a working bankruptcy law and not a suspension of the bankruptcy process,” Varma has written in his blog .
The government had put all the fresh insolvency and bankruptcy cases on hold in the wake of Covid.
In another piece co-authored for Hindu Business Line in May this year, Varma said in the context of going Concern assessment in the Covid-19 environment, companies should, rather than leave it to the judgment of the management and auditors, it would be better if companies made assessments based on a common template of assumptions laid down by the regulators. Varma has also extensively written about other financial markets including bonds and commodities.
At a time when the economic contraction is projected to be sharper than anticipated and inflation worries persist, the MPC has a tough job at hand.
Source:-moneycontrol.com