Even old economy will attract capital: Expert

New Delhi: Eminent economist Jayanth R Varma on Sunday expressed hope that in a few quarters from now, capital investment would begin to pick up even in the old economy, and said the next fiscal year is also expected to witness a decent growth.

Varma, who is also a member of the Monetary Policy Committee (MPC) of the Reserve Bank, in an interview to PTI said that inflation is a matter of concern, but as of now it is the persistence of inflation rather than its level that is a matter of concern. “I am quite optimistic about the Indian economy and its growth prospects... The next year (2022-23) is also expected to witness decent growth,” he said.

According to Varma, the pre-pandemic level of economic activity has already been surpassed, and the rest of this financial year should also see further recovery. He noted that calendar year 2021 saw dozens of new economy companies receive large funding both in private and public equity markets and these companies would have positive spillover effects into the rest of the economy as well.

“I am hopeful that in a few quarters from now, capital investment would also begin to pick up even in the old economy,” the eminent economist said.

Asked about the threat from the new COVID variant to the economy, he said the Omicron variant does create uncertainties, but he thinks the world is slowly beginning to live with the Covid-19 virus. “We should expect more new variants of the virus to emerge, but as vaccination coverage improves, the virus is becoming less dangerous,” he said, adding that health precautions like masks and social distancing have become ingrained in “our habits and in organisational systems and processes”.

As a result, Varma said most sectors of the economy are now able to function with minimal risk to employees and customers. “This reduces the downside risks to economic growth,” he observed.

On high inflation, Varma pointed out that a few months ago, CPI inflation had breached the upper tolerance band of 6 per cent, but more recently, CPI has been well within the band. According to him, the worry is that inflation is not coming down to the 4 per cent target.

Regulate cryptocurrencies

Replying to a question on cryptocurrencies, Varma said he believes that a strong and self-confident country like India should not be afraid of cryptocurrencies. “Properly regulated cryptocurrencies do not pose any threat to a country with sound economic management and well-functioning regulatory frameworks. There is therefore no case whatsoever for a ban,” he asserted.

According to Varma, regulators around the world have developed mechanisms to manage these risks and India should also proceed on this path.

India is contemplating bringing a bill in Parliament to deal with the challenges posed by the unregulated cryptocurrencies. Currently, there are no regulations or ban on use of cryptocurrencies. -(PTI)