Stressing that FY21 is going to be an exceptional year due to the pandemic, Subramanian told CNBC-TV18 that the government might explore the possibility of higher market borrowing to fund productive spending.
As India battles the COVID-19 pandemic, chief economic advisor Krishnamurthy V Subramanian on Friday hinted at a possible government loan guarantee to soften the blow for certain sectors like MSME, and expected that the pandemic would drag down tax revenue collections to the tune of 1% of GDP (roughly Rs 2 lakh crore).
Stressing that FY21 is going to be an exceptional year due to the pandemic, Subramanian told CNBC-TV18 that the government might explore the possibility of higher market borrowing to fund productive spending. The Centre had budgeted gross market borrowing of Rs 7.8 lakh crore for FY21 and had recently announced its plan to borrow roughly 62.5% of it in the first half itself.
He said adequate availability of working capital to MSMEs remains a matter of focus and that lenders can raise the limit of such loans by 15-25%. Steps to boost lending by financial institutions are being taken. As FE has pointed out, apart from huge health expenditure and funds for the poor, the government needs to set up an officially-guaranteed fund to backstop all MSME loans.
Even before the COVID-19 started to spread, non-food credit growth had crashed to just 6.3% year-on-year in the fortnight through February 14, the lowest since May 2017, mirroring a broader economic slowdown and risk aversion among bankers. The credit growth plunged further to 6.07% for the fortnight ended March 13, as the pandemic impact started to bite.
Given that the pandemic and a consequent pan-India lockdown have stoked unprecedented structural volatility, the CEA said GDP estimates may have to be revised multiple times to capture the actual churnings in the economy.