Chinese investment in Sri Lanka is part of the Lankan crisis (Arvind Panagariya)

Former NITI deputy chairman Aayog Arvind Panagariya said on Thursday that Chinese investment in Sri Lanka was part of the Sri Lankan crisis, but it was not the sole or main cause of the problem.

“China’s operations are not always transparent. As a result, countries have certainly suffered. Two examples are in our own neighborhood, namely Pakistan and Sri Lanka. China’s investment in Sri Lanka is part of of the Sri Lankan crisis, but it is not the sole or main cause of the problem,” said Panagariya, former vice president of NITI Aayog in an exclusive interview with ANI.

Panagariya said: “The crisis in Sri Lanka happened because of its policies over the past 10 years. Sri Lanka went on a borrowing spree and the external debt almost doubled compared to the size of the country. economy. This is a very large external debt. Much of this debt was borrowed from a private market by the Sri Lankan government. Also, it appears that not all that was borrowed was re-used. with great caution.

Panagariya said Sri Lanka’s per capita income is quite high.

“It’s between one and a half times and twice India’s per capita income. So in that sense, Sri Lanka has a somewhat richer economy and the possibilities for recovery are good. I remain optimistic that once they have a stable government in place, the situation will start to improve,” he said.

Panagariya said that Pakistan is also experiencing problems which are not as severe as in Sri Lanka, but the Pakistani Rupee has also depreciated quite dramatically.

“Pakistan is also facing foreign exchange problems and having difficulties in obtaining currency from various countries. So yes, they also have difficulties but their difficulties are not as severe as Sri Lanka’s. If I advised the Pakistani government, I would try to learn from what happened in Sri Lanka,” he said.

Responding to a question about the rupee touching as low as 79.88 against a US dollar, former NITI chief Aayog said: “We have to let the rupee depreciate because our competitors’ currencies have depreciated. So until “As of today, you know, our depreciation had been somewhere around 6 percent. But even the currency of the European Union, the euro, has depreciated up to 12 percent. China’s currency s “is also depreciated more than ours. So that makes our products less competitive. That’s a factor.”

“The second factor is that in the process of preventing the rupee rate from depreciating, the Reserve Bank of India has used our foreign exchange reserves. What happens in the market is that the rates of interest in the United States has gone up. So a lot of the investments that are in India, they want to get out of India, go to the United States and get higher interest rates. So when that happens, you know , there is a lot of demand for dollars.

“So as this demand for dollars against the rupee is high, there are only two possibilities. The first is that the Reserve Bank of India at the prevailing exchange rate would supply those dollars and absorb the rupee and foreign investors will give to convert them into dollars.If this is done, then we lose our foreign exchange reserves.

Talking about retail inflation, Panagariya said it is currently at a monthly inflation rate of around 7% and the latest figure has come down slightly. May inflation itself was a little lower than it was in April. So the trend is kind of down, he said.

“I think in the coming months we will see a bit more improvement because at least a significant portion of food inflation is coming from vegetables and fruits and vegetables. I think the next fruit and vegetable harvest is approaching at big steps. should also help. Look at the US where the inflation rate was 9.1% in June, increasing the risk of a possible recession,” he said.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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