He is also optimistic about achieving 8 percent growth this year and is awaiting Q2FY16 growth figures. He is in fact also hopeful that growth will be more than 8 percent in the next financial year.
India also raised tax avoidance issues at G20, says Panagariya.
On the issue of co-ordinated monetary policy, he says every country’s policy depends on the situation in their own country.
Below is the verbatim transcript of Arvind Panagariya’s interview with Shereen Bhan on CNBC-TV18.
Q: The G20 to a large extent has been overshadowed by what has happened in Paris, those unfortunate terror attacks. However, when we talk about growth and the economy, global headwinds seem to be getting worse at this point in time. What was the big takeaway as far as you were concerned for global growth?
A: It was recognised actually and International Monetary Fund (IMF) has been doing its calculations. So, on both counts the growth scenario looked a bit weaker. IMF revised growth downward about three times. However, G20 agenda was to raise the growth rate by 2 percentage points by 2018 so about the IMF estimates that one third of the effort has been already undertaken so at least on that front we are doing okay. However, overall growth scenario has turned a little less optimistic.
Q: If I may ask you about growth in the context of the global headwind and specifically as far as India is concerned, it now looks increasingly certain that we are not going to be able to achieve our budgeted target of 8 percent plus growth for this financial year. In fact you were talking about the IMF, if you look at the IMF forecast or any of the other global forecasts it looks unlikely that India will be able to get back to 8 percent plus kind of growth rates even as far as 2019 is concerned. Do you believe now that the 8 percent plus number that we were targeting is in danger of being missed?
A: No, I am not quite sure what you are referring to because general news I get from the people that I am talking to, the signals are generally positive. So, I am still awaiting the second quarter growth figures, let us see what they look like. However, I still remain kind of optimistic that we would get to 8 percent this year and certainly next year we will be crossing 8 percent.
I think most of the pieces for India, even in the discussions at G20, certainly India was seen as perhaps the only country which was sort of the country with relatively stable and high growth outlook. Chinese premier also said that they were expecting growth of about 7 percent or so. So, maybe that is a little overstated but our 8 percent remains feasible in my opinion.
Q: Let me also ask you then what you heard at the G20 in terms of the position when it comes to coordinated action from a QE world to now monetary tightening. We are likely to see the Fed move as far as interest rates are concerned. What was the debate and the discussion at the G20 in terms of coordinated central bank action moving from a world of easy monetary policy to perhaps a tighter monetary policy?
A: There are lot of discussions underway and the leaders talked about coordinated action. Generally speaking monetary policies, central banks like to act independently and so I think the progress in that area is going to be rather more difficult because each country works in its national interest and sets the monetary policy accordingly. So, while there is a case to be made for coordinated monetary policy it is one area where the actual outcome is much harder.
Q: Let me also ask you about the issue of tax avoidance which is something that the G20 as well as the Organisation for Economic Co-operation and Development (OECD) has been looking at and in this has been on the agenda as far as many G20 summits over the last couple of years are concerned now. Of course this was something that the Prime Minister also brought up there, the efforts to curb black money, to fight against black money, other G20 nations also now looking at terror financing and blocking terror financing at this point in time and blocking all avenues to that. If you can take us through the key highlights when it comes to tax avoidance as well as the efforts to curb the flow of black money and what India can take away from what happened at the G20?
A: The issue of black money abroad remains very high on the Indian agenda. Prime Minister Modi in his speeches actually referred to that, made a strong play that the banks cooperate in sharing information so that countries can bring the black money back to where it belongs. Also, then there is a related issue of tax avoidance, that also has been a major kind of agenda for India and we have pushed it and so there is base erosion and profit shifting (BEPS) system which is now being implemented and India made a very strong plea that we get more and more countries to adopt it because ultimately it is only wide acceptance of BEPS – so countries therefore try to or multinationals try to shift profits where the tax rates are low and that leads to the erosion of the tax base in the countries from which profits gets shifted. So there has been an effort under the auspice of G20 with the help of the OECD and that effort has been largely successful. Many countries have adopted the BEPS system and the more and more countries adopt it the less room for shifting the profits.