The government recognises the need for extending further stimulus at an appropriate time to stimulate demand in the Covid-ravaged economy, principal economic advisor Sanjeev Sanyal said on Wednesday.
While there is space on both monetary and fiscal sides to implement stimulus, given the limited resources, the government wouldn’t just splurge but be mindful of where to spend it, Sanyal said at an event of the PHD Chamber of Commerce and Industry.
The government had announced a Rs 21-lakh-crore relief package to soften the Covid blow to both individuals as well as businesses. However, analysts have pegged the direct fiscal support involved in this package at 1-1.5% of GDP (Rs 2-3 lakh crore), suggesting it was too inadequate to spur demand.
Sanyal said unlike many countries, which chose very large upfront demand creation, India’s approach was basically to focus on creating a safety net first for the poor and the vulnerable sections of society as well as businesses, mainly the small and medium ones.
“If we tried to re-inflate consumption demand in April, May, June it would have been entirely a waste of resources for the simple reason we ourselves have locked down all the avenues for spending,” he said.
With the substantial easing of lockdown curbs, the manufacturing sector is gradually returning to normalcy and the services sector is also gathering pace.
“So as we open things up, clearly, we are in a better position to do so (announce further a stimulus package). In this context, let me say there is space both on the monetary side and on the fiscal side to do this, and a willingness to use this,” he said.
Commenting on a potential spike in the public debt levels this fiscal, Sanyal said: “Our debt-to-GDP ratio is much lower than many countries and there is a case for allowing it to go up to inflate demand. But we will not spend blindly. We will be careful as to what we spend on.”
Speaking at the same event, KV Kamath, former president of New Development Bank, agreed that there is space on both monetary and fiscal sides for another package. The country’s top 50 companies have low leverage levels and have the capacity to make fresh investments, he added. Strong foreign currency flows, low-interest rate and ample liquidity augur well for the economy, he said.
Morgan Stanley India managing director Ridham Desai predicted that the size of India’s manufacturing sector will triple in the next 10 years. Terming inadequate capital expenditure as the biggest drag on India’s growth, Desai said most FDI is “concentrated in buying existing businesses rather than setting up shop”. “The changes brought about in the form of GST (goods and services tax), Real Estate (Regulation and Development) Act, the bankruptcy code, labour and farm law changes along with production-linked incentives will address the big address on economy, which is capex,” he added.