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Q&A with ET

17-Oct-2021Arvind Virmani

Q1. How much of a positive impact you anticipate in this year’s GDP because of a robust export this fiscal ($197 bn in first 6 months and $400 bn target for the year)? Kindly explain linking export-import trends so far with this year’s GDP projection.

Ans: The positive impact of faster than expected (12 months ago) Export growth will be partly offset by higher prices of oil imports. Taken together the impact of higher exports net of import bill will merely offset the weak recovery in private consumption so far.

The acceleration in export growth is due partly to recovery of World demand, and partly to a gradual shift of supply chains out of China into India. The latter will persist even if World growth slackens. GOI must do all it can to facilitate the shift of supply chains to India, including by simplifying import tariff structure and digitally integrating Customs, GST, RBI and Banks!

Q2. What’s your number for GDP FY 2021-22?

Ans: My Fy2021-22 GDP forecast remains at 10% +/- 1% which I first told you 9-12 months ago and you were the first to report in ET. The whole point of giving a 1% band on each side was the uncertainty arising from an unprecedented pandemic. One expected further negative shocks and positive surprises, and both have happened. The net effect to date is to leave my forecast completely unchanged.

Q3. As consumption and investments play a far bigger role (than export) in determining the GDP, what’s your advice to the government on boosting these two areas?

Ans: The time has come for State & Central Governments to give up the obsession with short term revenue maximization, through rate increases. With private consumption recovery slow and consumer confidence weak, GST council must go for ST revenue negative, LT buoyancy raising, tax reform. This must be complimented in next Union budget, by reform of the Direct Tax Code and Customs tariffs, to reduce MSME costs, increase their exports & revenues and thus stimulate jobs & incomes of the lower 60% of workers.

Q4. Anything you would like to add.

Ans: The structural reforms under way since September 2019 must be expeditiously completed, in letter and spirit. This will set the stage for GDP growth of 7.5% +/- 0.5% (7% to 8%) during this decade and beyond.