Battling the downturn! More fiscal measures certain, to be well-timed: CEA K Subramanian

By: |
July 23, 2020 8:00 AM

Speaking at a virtual Ficci event, the CEA said economic uncertainties will substantially ease once a credible Covid-19 vaccine is rolled out in, say, about two months.

Analysts say, of the Rs 21-lakh-crore relief package, real fiscal intervention is only to the tune of Rs 1-1.1 lakh crore; the rest are mostly in the form of credit guarantee and liquidity-enhancing measures.Analysts say, of the Rs 21-lakh-crore relief package, real fiscal intervention is only to the tune of Rs 1-1.1 lakh crore; the rest are mostly in the form of credit guarantee and liquidity-enhancing measures.

The government is initiating more fiscal measures to reverse the sharp growth slide, which has been exacerbated by the Covid-19 pandemic. Chief economic adviser (CEA) Krishnamurthy V Subramanian said on Wednesday that it’s now not a question of ‘if’ but ‘when’ to make such an intervention.

Speaking at a virtual Ficci event, the CEA said economic uncertainties will substantially ease once a credible Covid-19 vaccine is rolled out in, say, about two months.

That is when consumers will likely start discretionary spending and investors will respond, he said, hinting at possible intervention around the time discretionary expenditure, battered by the pandemic, shows signs of a recovery.

To an observation that given the slew of monetary measures already taken by the central bank, it’s now time for more fiscal action, Subramanian, borrowing from the famous dictum of Deng Xiaoping, quipped: “I don’t care about the colour of the cat as long as it catches the rat.”

Analysts say, of the Rs 21-lakh-crore relief package, real fiscal intervention is only to the tune of Rs 1-1.1 lakh crore; the rest are mostly in the form of credit guarantee and liquidity-enhancing measures. Of course, last month the government extended the free grain scheme by another five months through November, with potential subsidy of another Rs 90,000 crore.

In an indication that the government may effect further consolidation in the public-sector banking space, the CEA said the dream of Aatmanirbhar Bharat can’t become a reality without a solid banking sector, which has scale and ensures both quality and quantum of credit. China, for instance, has as many as 18 banks in top 100 banks globally, the US has 12 but India has just one (State Bank of India). Already, thanks to consolidation, the number of state-run banks in India has come down from 27 in 2017 to 12 now.

“Any economy that is sizable enough has been built only when the banking sector had large banks. This is one area in which India lags behind spectacularly and a lot of work is required,” he said.

Suggesting that the banking sector has been marred with both scale and quality problems, the CEA said: “When we (banks) try to achieve scale, we do not end up lending the right way because the banking sector also has a problem allocating capital to good quality projects. Both of these are equally important,” he said.

Subramanian highlighted that Aatmanirbhar Bharat will be created on the foundation of competition, an essential attribute of a free-market economy. “Self-reliance can’t be achieved without cutting-edge technology, and cutting-edge technology can’t be created without competition…capabilities are never built without competition.”

In a call to India Inc, he said companies shouldn’t just blame external factors. Rather they should say they will surmount all the barriers, whatever may be the environment. Also, using the example of the FMCG segment that caters to the entire spectrum of population, the CEA said: “Indian firms can craft their products and services by catering to the entire market, and not just the richest 25%.”

The CEA also reiterated the role of the bad loan crisis, emanated from the indiscriminate lending of the UPA era, in dragging down economic growth in recent years.

“Large parts of the current slowdown is because of problems in the banking sector. NPAs, risk aversions and decline in corporate lending had an impact on investment, which led to slowing of growth which in turn led to drop in consumption,” he said. Banks, he said, lent only about a half of the deposits they got last year.

To ensure quality lending, Subramanian pitched for a greater use of technology and big data to screen unscrupulous borrowers. Such tech-based due diligence in corporate lending, particularly, hasn’t improved as it should have, he said.

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1RBI ensures benign rate of interest, ample liquidity to support growth amid high inflation: Experts
2RBI MPC leaves policy rates unchanged at 4%, stance accommodative for 3rd consecutive time
3Budget 2021 to be prudent; growth oriented, says RBI Governor Shaktikanta Das