The current crisis is different from the past such events. Therefore, resorting to a push on fiscal spending cannot be the only solution. The government is waiting for the right time to do the fiscal spending, says Krishnamurthy Subramanian, Chief Economic Advisor to the Government of India.
Addressing the virtual Cafemutual Confluence 2020 Investment Marathon, he said that these are extraordinary times and they require extraordinary measures. So, it is okay if the fiscal deficit widens while pushing growth.
“Consumption and investments fall in tough times like these. While uncertainty remains, giving cash in the hands of people doesn't help as they just tend to save that money, not spend,” he said.
Subramanian further says, “Comparing this crisis from other economic crises is not fair. This is a health crisis so investment in vaccines is a good thing. Further, until the vaccine comes out and the pandemic is in control, the government can do very little to boost consumption.”
He was optimistic that vaccines probably might be accessible to many people in the next 5-6 months, which will also bring down a lot of uncertainty.
Talking about factors affecting economic growth, Subramanian points out that India’s banking system is a huge challenge to growth. He says Indian banking sector’s size is extremely small. Rising NPAs in the banking sector, wilful defaults, rising risk aversion and reduction in corporate lending are slowing growth of the banking sector. Further, declining corporate lending has led to decline in investment. As a result, this vicious circle has slowed down growth.
He further said, “Hence, If we really have to speed up growth in the Indian economy we basically need to focus on the banking sector.” He suggests that India’s fiscal policy needs to be far more counter-cyclical, the banking sector requires huge investments and we need to adopt a more focused strategy for exports.
Both public and private sector banks need to be using far more technology and analytics. “I believe artificial intelligence can prevent willful default and aid in quality corporate lending,” he added.
