PTI<\/em> in an interview.<\/p>\n He said the \u201cshort-term as well as medium-term prospects (for Indian economy) continue to be grim\u201c.<\/p>\n
\u201cThe pandemic is still spiralling, the number of daily cases is rising and it is spreading to newer regions,\u201d he added.<\/p>\n
On India\u2019s medium-term growth prospect, the former RBI governor said that the economy was in a troubled state when the COVID-19 crisis hit India.<\/p>\n
\u201cWhen the crisis is behind us \u2014 and I hope that is soon enough \u2014 these problems are going to be much bigger. Fiscal deficit is going to be much higher, the debt burden much larger and the financial sector in a worse shape,\u201d he said.<\/p>\n
The World Bank last week projected India\u2019s fiscal deficit to rise to 6.6% of GDP in 2020-21 (April 2020 to March 2021) and remain elevated at 5.5% in the following year. This compares to the 3.5% target set by the government.<\/p>\n
\u201cOur medium-term prospects will depend on how effectively we resolve these challenges,\u201d Mr. Subbarao said.<\/p>\n
With India\u2019s economic growth in pre-COVID 2019-20 fiscal slipping to the lowest in a decade, global and domestic agencies have indicated a sharp contraction in the GDP in the current fiscal. The estimated contraction ranges from 3.2% to 9.5%. This will be the first contraction in four decades.<\/p>\n
Asked whether he sees any positive at all in this grim scenario, he noted that the rural economy has recovered better than the urban economy helped by several factors and the expanded MNREGA provided a lifeline when most needed.<\/p>\n
Mr. Subbarao said that another big although less acknowledged positive is that the economy today has some basic safety-nets in place.<\/p>\n
Citing an example, Mr. Subbarao said that 40 million urban labour went back to their villages post COVID-19 induced lockdown and despite that there have been no reported cases of mass starvation or hunger.<\/p>\n
\u201cThrow your mind back 20 years or even 15 years, and it\u2019s easy to imagine how easily this could have turned into a story of hunger, destitution and death. That story did not play out is a testimonial not just to this government but to successive governments over the last several decades,\u201d he emphasised.<\/p>\n
On criticism that the government is not spending enough to help the nation tide over the economic crisis, the former RBI governor said he does believe that it is critical for the government to borrow and spend more.<\/p>\n
\u201cIndeed, government spending is the only growth driver we have in the short term; all other growth drivers \u2014 private consumption, investment and net exports – are all depressed.<\/p>\n
\u201cBesides, if the government does not spend more now to arrest the decline, many problems such as bad loans will only get even more intractable and take a much heavier toll on the economy,\u201d he argued.<\/p>\n
Mr. Subbarao, however, added that government borrowing cannot be open ended, it should set itself a limit.<\/p>\n
\u201cThat will force the government to be efficient, transparent and accountable,\u201d he noted.<\/p>\n
Asked where he thinks additional spending should go, Mr. Subbarao opined that given the very limited fiscal space, more than ever, the government should aim to get the maximum bang for the buck.<\/p>\n
\u201cSpending can go either to spur consumption or production,\u201d he said, adding that he believes production should take precedence over consumption.<\/p>\n
Noting that the RBI has already given guidelines for loan restructuring by banks, Mr. Subbarao said, \u201cThe government can chip in by taking some of the loan burden of MSMEs and of MUDRA loans.\u201d <\/p>\n
The government also needs to spend a significant amount to recapitalize banks, and through that, provide support for recapitalization of NBFCs, he added.<\/p>\n
When asked about the criticism that the RBI has not been bold enough on unconventional monetary policies, he said the LTROs that the RBI has instituted to support specific sectors like NBFCs, MSMEs, HFCs etc. are certainly unconventional policies.<\/p>\n
\u201cTrue, the RBI has not gone into as much uncharted territory as advanced economy central banks but there was no need to. A central bank cannot be expected to do something just because it is fashionable; it should make its policy as demanded by the macroeconomic circumstances,\u201d he said.<\/p>\n
Besides, Mr. Subbarao noted that in comparison with advanced economies, we must remember that the markets are less forgiving of unconventional policies by emerging market central banks as compared to rich country central banks.<\/p>\n
Asked whether having a universal basic income (UBI) would have made the problem simpler during COVID-19 pandemic, he said UBI is a neat idea, yet it is not clear that UBI is an unambiguously good idea.<\/p>\n
\u201cWhat is the guarantee that politicians will not convert UBI to a UBI plus? Giving subsidies is after all so politically intoxicating.<\/p>\n
\u201cSo, we might end up in a worse situation than we are in now,\u201d Mr. Subbarao said.<\/p>\n
Nevertheless, the balance of advantage may lie in adopting UBI provided, the government can institute some checks and balances for minimising the downsides, he added.<\/p>\n<\/div>\n
Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"\u201cThe pandemic is still spiralling, the number of daily cases is rising and it is spreading to newer regions,\u201d he added Calling \u2018green shoots\u2019 of economic revival as a mechanical rebound, former Reserve Bank Governor D. Subbarao says India\u2019s short and medium term growth prospects continue to remain grim and […]<\/p>\n","protected":false},"author":1,"featured_media":16913,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","footnotes":""},"categories":[36],"tags":[],"class_list":["post-16912","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banking-business"],"jetpack_featured_media_url":"https:\/\/bengalnewstimes.com\/wp-content\/uploads\/2020\/08\/03HYNRK01-SubbaGOM35VBJ93jpgjpg.jpeg","_links":{"self":[{"href":"https:\/\/bengalnewstimes.com\/index.php?rest_route=\/wp\/v2\/posts\/16912","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bengalnewstimes.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bengalnewstimes.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bengalnewstimes.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bengalnewstimes.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=16912"}],"version-history":[{"count":0,"href":"https:\/\/bengalnewstimes.com\/index.php?rest_route=\/wp\/v2\/posts\/16912\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bengalnewstimes.com\/index.php?rest_route=\/wp\/v2\/media\/16913"}],"wp:attachment":[{"href":"https:\/\/bengalnewstimes.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=16912"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bengalnewstimes.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=16912"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bengalnewstimes.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=16912"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}