Panagariya further said recessionary fears have been around for a while but so far neither the US nor the EU has gone into recession.
“From the viewpoint of India, in terms of headwinds originating abroad, the worst is probably behind us,” he told PTI.
Earlier this month, the RBI revised down its growth estimate for FY23 to 6.8 per cent from the earlier 7 per cent, while the World Bank revised upwards its GDP growth forecast to 6.9 per cent, saying the economy was showing higher resilience to global shocks.
“Overall, I still expect us to end the current fiscal year with a growth rate exceeding 7 per cent. Next year, the 7 per cent growth rate should sustain assuming the forthcoming Budget does not have any negative surprises,” the eminent economist said. Panagariya said capital outflows induced by the hikes in policy rates by the US Fed Reserve had placed the rupee under considerable pressure.
“Those flows have reversed with positive net portfolio inflows in November,” he said, adding that inflation in the US is also coming down, suggesting the worst may be over in that country as well.
But in the meantime, according to Panagariya, the rupee has appreciated against currencies such as the Euro and Yen which may contribute to weakness in exports in the coming year.
Even prior to this episode, the rupee had been overvalued, he added.
“So, I would lean in favour of further depreciation of the rupee against the dollar,” Panagariya, currently a professor of economics at the Columbia University, said.
Replying to a question on unemployment, Panagariya said going by the Periodic Labour Force Survey (PLFS), which is the most reliable household survey available, he does not see that the unemployment rate is high.
“Higher unemployment among the youth is not a new phenomenon. This rate has always been higher than the overall rate because youth do not take the first job they are offered. Instead, they wait in the hope of getting a better offer,” he argued.
Panagariya also pointed out that in recent years, due to rising urban incomes, parents are able to support their children for longer.
“As a result, the waiting period has become longer, which has resulted in an upward shift in this rate,” he said, but pointed out that as per PLFS, the unemployment rate among those aged 15 to 29 years has fallen from 20.6 per cent in 2017-18 to 18.5 per cent in 2020-21.
To buttress his argument, Panagariya said that based on usual status measure, unemployment rate stood at 4.2 per cent in 2020-21 compared to 6.1 per cent in 2017-18.
Noting that EPFO data also show a robust rising trend in net additions to its rolls, suggesting formalisation of the workforce at an accelerated pace, he said, “Compared with less than 8 million additions in each of the three preceding years, net additions in 2021-22 were 12 million.”
In the first half of 2022-23, net additions have already reached 8.7 million, he added.