Rates may come down due to Inflation, bad loans need radical solutions: Arvind Panagariya

July 23, 2015: According to the Niti Aayog Vice-Chairman Arvind Panagariya,  the slowdown in developed countries cannot effect the fast growth of emerging economies of developing countries as long as there is a market for its goods and services.  The free market economist also said that the appreciation of Indian Rupee may be hurting the exports, but the economic troubles of China may provide some opportunities to get into some export markets.


There is also a possibility that there may be some more downfall in the interest rates. With further lower rates, the huge problem of bad loans will become much harder to tackle. The RBI itself has warned many a time about the problem.


Rate Cut Inflation Bad Loans


Bad loans have been the biggest macroeconomic problems. No growth could be imagined without ruling out the instruments to end the problem of bad loans. One such instrument is the Bad Bank. A Bad Bank is a foundation set up to take up the bad loans from banks clearing their balance sheet. The government should make necessary reforms to clear out the NPA (non-performing assets) of the banks.


One reason for the bad situation of exports is the appreciation of rupee against euro and yen. "the rupee has surely appreciated against the euro and yen recently in both nominal and real terms. Basic theory suggests that this must have had an adverse effect on our exports to Europe and Japan," he said.  According to him India's growth might be doubled against the soft global economy.


"For us, the critical step is to wrest some of the shares of the vast export market from China and other competing countries. Remember that the OECD (Organisation for Economic Cooperation and Development) countries had grown no more than 1.5% per year during 1991-2013 when China managed to register a near double-digit average rate," Panagariya said.