Former chief economic advisor Arvind Subramanian on Tuesday said that India should plan for “substantially negative economic growth” this financial year due to the coronavirus crisis and that the government should tap various sources to finance a Rs 10 trillion stimulus.
Speaking at the Indian Express e-Adda from the US, Subramanian said that distribution of food and cash are the two key tools India should be using to help people tide over the crisis.
Subramanaian, who is currently senior fellow at the Peterson Institute for International Economics and a visiting lecturer in public policy at Harvard University’s Kennedy School of Government, said at the videoconference that low food and fuel prices and the currency reserve India has allowed policy makers to be bold in rolling out a stimulus package without fear of a spike in inflation.
He, however, added that since the crisis came on top of an already weakening economy for India, the country’s challenge might still be a bit more difficult one than faced by many other nations. “I think the IMF forecast for India is absolutely mystifying and bizarre. India should plan for negative, maybe, substantially negative growth rate in this financial year,” he said.
The International Monetary Fund (IMF) this month cut its India growth forecast to 1.9% for FY21 from 5.8% projected in January, even as it predicted a 3% contraction for 2020 global GDP, warning that the Covid-19 outbreak has plunged the global economy into its worst recession since the Great Depression in 1930s. However, economic expansion for India will likely rebound to 7.4% in the next fiscal, the Fund said.
“I think the kind of lockdown policies in India have not been any less than those in advanced countries. So far, India has a fiscal response of less than 1% of GDP, whereas on average, the advanced countries have a response of 8.5% of GDP. If you put all these together, I cannot see how even allowing for the fact that India is a more dynamic economy, how India’s growth rate cannot decline by the orders of magnitude that the IMF is projecting for the advanced countries,” Subramanian said.
He added: “It’s not as if India by spending 5% of GDP is going to suddenly become more irresponsible than other countries. This is an exogenous shock, which nobody was responsible for. If the government policy is reasonably responsible, going forward, which I think it will, and I think affordability is not an issue.”
On the possible sources of resources, the former CEA said: “It should come from a variety of sources… from abroad, NRIs and multilateral institutions”. While appreciating the need for some cuts on the expenditure, he supported a judicious mix of steps including solidarity taxes, printing money and issuing more bonds to the public. “So I think that we need to do everything, all of the above, so as to not burden any one sector, or anyone.”