Mumbai: The investment cycle in India is likely to pick up sooner rather than later, driven by the export sector which is expected to be boosted by US-led global growth. However, it could take a couple of quarters for banks' books to be cleaned up after recapitalisation, according to Harvard economist Gita Gopinath.
Gopinath, the John Zwaanstra Professor of International Studies and Economics at Harvard University, was in the city to deliver the 33rd Exim Bank commencement day lecture. Speaking to TOI, Gopinath said that fears that Donald Trump's tax breaks for US businesses triggering reverse capital flows to America are misplaced.
"It is not as if the corporate money was sitting outside. It is money that is probably sitting with financial institutions in the US. The only time you get taxed on this money is when you use it for investment in your company. So I don't know whether this will result in a change in the portfolio where they hold their money," she said. While the tax breaks do hurt US fiscal deficit numbers, there is no risk from a worsening deficit because of a huge global appetite for US treasuries.
Gopinath pointed out that the US Fed is much less sanguine about the growth boost from the tax breaks. As against the Trump administration, which is forecasting a one percentage point addition to growth in a year, the Fed is expecting the tax breaks to add 0.1-0.3 percentage points.
On S&P's decision not to upgrade India, Gopinath said that it did not have much of an impact on the country as there is no lack of funds coming into India. "That is one area that has been going gangbusters since this government came into power. There is no lack of FDI or foreign portfolio investment," she said.
According to Gopinath, the shift towards financial literacy and the financial engagement after demonetisation could have been achieved without the pain of note ban. "For me, the one thing that came was the signaling that the government was serious on fighting corruption and black money. I don't believe it was successful in accomplishing that, but as a signaling device it was very strong," she said. "The GST is actually way better at formalising the economy," she added.
Gopinath is supportive of the RBI decision to keep interest rates on hold. "The most recent inflation numbers do not support the argument that real rates are too high. The period when we had negative rates was also the time we had super high inflation. We certainly don't want to be in that kind of a policy regime," she said.
Source: timesofindia.indiatimes.com