Nobel laureate Paul Krugman blames demonetisation, RBI, strong rupee for India's tepid growth

Mumbai: Blaming the Modi government's note-ban, hawkish monetary policy of RBI and a strong rupee for the tepid growth, Nobel winning economist Paul Krugman today said the 6 percent GDP expansion is "disappointing" for a country like India.

The noted American economist also questioned whether the favourable demographics which makes the country with the highest working age population in the world, would aid economic growth at all.

"Your 6 percent growth is actually disappointing. You probably should be doing 8 or 9 percent," the economist said. Unlike the advanced economies, it is "conventional macroeconomic issues" which are afflicting India, he said.

Diagnosing what limits the economic expansion, Krugman blamed the sudden demonetisation announced last November, the continuing tight monetary policy and also a strong rupee which makes exports uncompetitive.

Nobel winning American economist Paul Krugman

Nobel winning American economist Paul Krugman

"You have an odd demonetisation which created some disruption, you have a monetary policy that looks tighter than one can easily justify. I don't quite understand why it isn't looser," he said.

On the continuing hawkish stance of the RBI, he added, "if advanced countries saw the trends of inflation that you see here, you would be talking of substantial loosening of your monetary policy."

Despite inflation trending much below its target of 4 percent, the RBI has held on to its elevated rates which many experts blame for stifling growth.

The GDP grew by 6.1 percent in the last quarter of fiscal 2017, which was attributed largely to the note ban. On 8 November, 2016, Prime Minister Narendra Modi took the nation by surprise abolishing Rs 500 and Rs 1,000 banknotes with stated objective to fight the scourge of blackmoney.

However, withdrawing 86 percent of the currency in circulation in a economy that was close to 98 percent cash-driven, had its impact on growth, as seen in the official data released in May.

On the issue of demographics, Krugman termed the situation to be a "little problematic" for the country.

"India is still a surplus labour economy with a large number of people inefficiently employed in agriculture which means instead of providing the base for rapidly growing is not clear why a favourable demography is not translating into favourable growth," he said.

Updated Date: Jul 06, 2017 12:04 PM

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