She delivered a lecture on “Indian Economy: Shocks, Resilience and the Way Forward” at the Madras School of Economics in Chennai.
“We have projected growth of 6.7 per cent this year, but it is quite likely the numbers may turn out to be better, based on the high frequency indicators and analysis of other agencies,” Gupta said.
“In the next 5-10 years, personally I am expecting growth rates to be consistently be there, if not accelerate. The growth rates will become steadier, while macroeconomic, financial and fiscal stability will continue,” she said.
“My hope is and my expectation is 2027 would be a benign year, a kinder year for policymakers,” Gupta said.
She said in the next 5-10 years the growth is likely to hover around 7.5 per cent.
“We should aspire to do better than that and balance of payments is likely to be much more conducive as well,” Gupta said.
To an audience query on growth vulnerabilities, the RBI Deputy Governor said she does not anticipate structural vulnerabilities and sees there are many more opportunities that the country can leverage.
“I will frame the question differently. Whatever we are doing, is it enough for us to be able to grow at 8 to 10 per cent growth,” Gupta said.
“For that I think we have to continue to strive to do better than we are, which is continuously be more innovative, more efficient, more aspirational become as productive as some of the largest manufacturers of the world while not losing sight of the fact that we have natural advantages in services and that we have to continue to cultivate those,” she said.
Gupta said the country has to find more and more engines of growth.
“And if you look at sectorally, if you break manufacturing sector or agriculture services, more finally into sub-sectors, you will see that we are actually doing better than before in many more sectors. You look at pharmaceuticals, auto components, electronics, defense, in services, you look at states doing well,” she said.
Agriculture, we are doing very well and we can continue to do well. So, continuous growth is an incremental journey and the journey has to be continued and new engines of growth have to be added and in all of this states play of very important role, Gupta said.
In her presentation, she said India’s economic growth is expected to close to 7 per cent this year, amid shocks like tariff crisis, extreme global uncertainty and a possibility of rainfall not conducive, highlights the resilience of the economy.
“So, domestic growth has accelerated. It has become far more stable and it is broad-based,” Gupta said.
She noted that over the last 10 years’ inflation has declined and more stable and “the Flexible Inflation targeting framework has served us well.”
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India’s inflation rate in the past few years has been close to the average of advanced economies and much less than that the average inflation rate experience in emerging market and developing economies, Gupta said.
“Financial sector is not just resilient. It’s becoming much more efficient,” she said.
External sector is showing a lot of resilience under the circumstances of global challenges, the RBI Deputy Governor noted.
“On the external side, we are less sensitive to some of the shocks than we used to be in the past,” she said.
Gupta said every single state is growing faster than before.
“Growth rate has become more stable across states. Results have also shown that richer states for most part have grown faster than the poorer states in the last many decades. But we are also seeing some encouraging signs of convergence in the following way that the pace of divergence has slowed around,” she added.
Gupta said on the fiscal side, the debt and deficit metrics are gradually declined towards precovid levels.
“India’s external sector has some structural strength. We have a net surplus on services exports. We have very healthy remittances. We are doing much better on our merchandise exports,” she noted.
And we have Foreign Direct Investments numbers that are increasing very rapid very well, Gupta noted.
The extent of current account deficit in percentage of GDP is declining over time. Reserves are very healthy, she said.
Gupta said in the next five-six years minus any shocks India can become a current account neutral country.
She also pointed out that India is a very large and diversified economy and consumer base.
“If you look at smaller economies around the world, you may see that they have only one sources of growth. An economy, let’s say, dependent on something for example copper. If copper prices crash globally, they do not have anything else from where they can draw their economic strength from,” Gupta said.
Some other economies are demographically shrinking or you may have economies which are not placed very well geopolitically. You may have an economy which does not have a large domestic consumer base, but which may be too dependent only on manufacturing and then trade fragmentation happen and you are not able to supply, she pointed out.
Gupta said India’s strength is its very large economy comprised of diverse states.
“Each state having its comparative advantage trying to do well. Demographic dividend still on our side. When trade fragmentation happens we are able to diversify our pool of both exporters and importers. For oil, we diversified our pool of importers. When we had a tariff from the US, we could diversify our pool of the countries we export to,” she said.