Former chief economic adviser Arvind Subramanian on Tuesday said India should plan for “substantially negative economic growth” this fiscal due to the coronavirus crisis and that the government should tap various sources to finance a ₹10 trillion stimulus.
“We save for a rainy day, and when a rainy day comes, you have to spend. This is not a rainy day, this is a deluge, it’s like the Hindu pralaya. He said distribution of food and cash are the tools which can pull India out of the crisis.
The condition of Indian economy was decelerating even before the lockdown and countries like India who are on nation wide lockdown has fiscal stimulus measures. With the economy coming to a standstill due to the national lockdown imposed to contain the spread of the virus, India has witnessed an exodus of migrant workers from cities to their home states not seen in recent history. The loss of livelihoods is expected to impact demand for goods and services after the lockdown is gradually lifted, hampering central and state government revenues, limiting their ability to offer a big stimulus.
On this note hearing about IMF’s growth forecast for India was mystifying as India was already struggling from which it is difficult to say India being dynamic economy, its growth rate doesn’t show the same and that we must prepare for substantial negative growth rates for this financial year. India should spend at least five percent of GDP, or Rs 10 lakh crore, financed “responsibly through monetisation” and only as a “one-off measure” to find resources for the duration of the crisis, he said.
Coronavirus crisis will make US, Europe, China weaker internally: Subramanian
One way to help the private sector at this stage, Arvind Subramanian says will be to make available the arrears. Subramanian further says sometimes such crisis like these, magnifies pre-existing vulnerabilities. “Globalisation will be different in a post-Covid-19 world. The coronavirus crisis will make US, Europe and China weaker internally. US response to crisis has been worst in the world. Countries which turn the crisis into opportunities should be marked out,” he says.
No doubt having Foreign Direct Investment (FDI) will help the economy. There is no need to concentrate on any particular industry as it also provides competition and keeps a check on monopoly.
As the lockdown opens up and businesses comes to life, one has to be worried for its NPA’s and stressed out assets. Surely strategizing the future is required but at this time uncertainty is at its peak.
“The RBI has provided a lot of liquidity, but it hasn’t translated into actual credit flowing to companies. I think the two constraints are: first, who makes those decisions, and we need a lot of protection for people to make those decisions. And second, who bears the risk of that lending. There is no doubt in my mind that the risk of lending should be borne by the government in this situation. This could be via a credit guarantee scheme, or a separate government fund, like, in the United States,” he said
As far my opinion is concerned RBI has provided benefits which can lead us to a way out of the crisis. The 15th Finance Commission should reconsider the needs of states, he said. “The quickest ways of getting money to the states would be to increase the deficit financing by the RBI,” Subramanian said.