India’s macroeconomic situation is certainly better than what it was a year ago, eminent economist Pinaki Chakraborty said on Monday, while expressing hope that the country will be back on the path of economic growth if there is no major third wave of the COVID-19 pandemic.

In an interview with PTI, Chakraborty, who is the director of the National Institute of Public Finance and Policy (NIPFP), said that inflation may remain at an elevated level as there was a significant fiscal and monetary expansion in the last 18 months.

“The current macroeconomic situation is certainly much better than what it was one year back. We are seeing recovery in most sectors,” he said.

Chakraborty noted that COVID-19 vaccination has been going on at a very fast rate in India.

“And hopefully if there is no third wave, we will be back on a path of economic growth which will be sustainable and increasing,” the eminent economist added.

According to Chakraborty, COVID-19 vaccination brings a sense of health security and should help resumption of normal economic activity, particularly in the services sector, which contributes more than 50 per cent of India’s GDP.

The Reserve Bank of India (RBI) has lowered the growth projection for the current financial year to 9.5 per cent from 10.5 per cent estimated earlier while the IMF has projected a growth of 9.5 per cent in 2021 and 8.5 per cent in the next year.

Noting that GST collections have been quite good in the last couple of months, Chakraborty said, “And if we are able to manage our deficits in a manner that does not become a problem later, recovery will be sustainable and durable”.

Asked what fiscal measures are necessary to support households in distress, he opined that “So fiscal programmes targeted to improve the household budget is important. However, we have to recognise what is possible within the limited resources.”

He further said that in this context, the issue of growth and private-sector job creation becomes very important.

On fiscal challenges, Chakraborty observed that there is a need to look at the deficit of centre and states together.

The eminent economist pointed out that in the fiscal year 2020-21, the deficit of all levels of governments is estimated to be 14 per cent of GDP and the same is estimated to be around 10 per cent of GDP in 2021-22.

“The deficit levels are high, global debt has increased and the pressure to provide immediate resources for the Covid response for health and livelihood has not declined,” he said, adding that in a situation like this, medium to long term planning becomes a very difficult task.

Chakraborty opined that data shows that globally, governments are faced with complex challenges related to resource allocation for three priorities: life, livelihood and economic recovery.

“How much resources to each of these components, would depend on the country-specific need and how it is done will determine the pace of recovery. It is easier said than done and is a continuous process as we navigate the pandemic,” he said.

According to Chakraborty, the state government’s revenue in India had contracted by 16 per cent in 2020-21 while the health expenditure increased by 24 per cent.

Asked if high CPI and WPI inflation are a concern, he said high inflation is always a concern but it is also important to recognise that managing inflation is also a phenomena that is to be fought on multiple fronts.

“Inflation may remain at an elevated level as there was significant fiscal and monetary expansion in the last 18 months,” he said.

The wholesale price-based inflation spiked to 5-month high of 12.54 per cent in October, mainly due to rise in prices of manufactured products and crude petroleum, while retail inflation inched up to 4.48 per cent in October due to an uptick in food prices.

On the stock market boom at a time when economic growth has slowed down, he noted that it is important to recognise that the market is always forward looking.

“But over time, we would require broad-based recovery….I think formal sector employment will increase only when we have a broad based economic recovery,” the economist said.