According to Jamal Mecklai, the initial excitement about the potential benefits of Trump’s tariffs for the Indian economy has worn off. The government has taken measures such as cutting goods and services tax (GST) and providing support to exporters, but Mecklai argues that more needs to be done to address the underlying structural issues in the economy. These include land reform, improving agricultural productivity, creating meaningful employment opportunities, and increasing investment in education, health, and research and development.
Mecklai believes that the current macroeconomic position, with a contained deficit and stable growth, presents an opportunity to increase investment in these areas, even if it means a slightly higher deficit. However, the Chief Economic Advisor has expressed concerns about the potential risks to the government’s borrowing program.
Mecklai also suggests that exchange rate policy can be used as a tool to support the economy. The rupee has been the worst-performing currency among 25 tracked currencies since January, despite the dollar index falling by 8.8%. Mecklai argues that a stronger rupee would have helped control inflation and interest rates, but the Reserve Bank of India (RBI) has been focused on supporting exporters by keeping the rupee weak.
However, Mecklai notes that this approach has not been effective, with goods exports growing by only 0.2% year-on-year over the past 12 months, despite a nearly 9% weaker rupee against the euro. He suggests that the RBI should develop a more nuanced approach to exchange rate policy, taking into account global growth forecasts and domestic competitiveness. This could involve allowing the rupee to strengthen when global growth is weak and uncertain, rather than pushing it lower.
Overall, Mecklai argues that the Indian economy needs a more aggressive and comprehensive approach to addressing its structural issues, rather than relying on short-term measures to support exporters. By investing in key areas and adopting a smarter exchange rate policy, India can build a stronger and more competitive economy. Mecklai’s views are personal and do not reflect the official position of FinancialExpress.com.