)
Global commodity prices are showing signs of moderation, with crude oil dropping below $100 a barrel. As India looks to revive its economy, falling international commodity prices give a window to the government to move ahead with much-needed reforms.
Gita Gopinath, professor of economics at Harvard University, in an interview with Sanjeeb Mukherjee, says commodity prices can overturn in a matter of weeks. Edited excerpts:
There were reports that global commodity prices are showing signs of moderation. How do they fare for a country like India, particularly of crude oil?
The fact that global commodity prices are coming off is good for India from the point of view of inflation management. The prices are coming down primarily because of slowdown in Chinese growth, a big source of demand for commodities.
But, the reality also is that commodity prices do get impacted by a number of other factors as well. If something happens in West Asia tomorrow, the situation might change.
Many experts feel the current drop in commodity prices is only a correction and not a prolonged bear phase. How do you see that?
The reality of global growth is that China is not growing at 10-11 per cent (yearly) as it was doing earlier. In fact, much of its capacities are overbuilt. This gives you a reason to think it might not change but then tension in West Asia is also a reality.
There has been a call for bringing down interest rates to spur growth. Many industrialists participating in these sessions have called for lowering these. How do you see this?
The Reserve Bank of India is the best judge of the monetary policy stance and it is doing a good job. If it cuts interest rates and there is a reversal in inflation tomorrow, it will be blamed. At the same time, I do agree the current environment makes a good case to rethink on interest rates.
What makes you say so?
There are a couple of things to rethink on interest rates. Crude oil prices are down, inflation expectation has moderated, the rupee has stabilised and the government has taken a number of steps to ease supply-side pressures.
How do you see the general economic environment in India?
Immediately after the Budget, I was less enthusiastic on India, probably because of a new government. But, in the past one month or so, a lot of steps have been taken that make me optimistic. However, we are yet to see revival in the rate of investment. It had dropped from 38 per cent of GDP (gross domestic product) to 32 per cent but has not picked up after that.
So what is your financial year-end GDP growth estimate for India ?
I think somewhere around 5.5% to 6.0%.
