Economy likely to show negative growth in current year: Montek Singh Ahluwalia


Former deputy chairman of the Planning Commission, Montek Singh Ahluwalia, explains why recovery will begin only next year. Excerpts from an interview with Shantanu Nandan Sharma over phone and email:

With major commercial hubs in Covid-hit red districts, do you feel the green and orange zones will be able to fire up the economy?

The relaxations in the green and orange zones are welcome but since 60% of the economy is in the red zone, there is no question of ‘firing up’ the economy until restrictions in the red zones are also lifted. How soon that will be is difficult to say. Lifting the lockdown will lead to a rise in infections.

The rationale behind the lockdown was not that it would prevent infections but that it would allow us to build the health infrastructure to be able to cope with larger numbers infected. I do not know what progress has been made in that front and how much of a spike we are willing to tolerate after lockdown. If the spike is very sharp, the restrictions could be imposed again. This is part of the current uncertainty.


Besides, even after restrictions are lifted, it will take some time for economic activity to get back to normal. The reverse migration that has taken place may not be quickly reversed. Recession in the world economy and reduced level of remittances will have a negative impact. Private sector investment plans, which have been interrupted, will take time to resume. That is why many analysts are predicting that we may see negative growth in 2021, with recovery beginning only next year.

Can a big stimulus help the economy?

The focus on a fiscal stimulus to revive the economy is a bit misleading at this point because as long as the lockdown is in place economic revival is limited by the restrictions on supply and broken supply chains. In this situation, a fiscal stimulus, which acts on the demand side, will make little difference to GDP.

However, some things are clear. With the economy likely to show negative growth in the current year, tax revenues will be much lower than originally forecast. Disinvestment receipts are also unlikely. These factors, along with increase in expenditures, will push the Centre’s fiscal deficit to about 6% of GDP or more. In addition, the states have a similar problem, with a sharp fall in revenues. They are in some ways at the forefront of the battle against Covid-19. The question is whether they will be helped to some extent by the Centre and also allowed to increase their borrowing limits.

What’s your immediate prescription to boost the economy?

We are still not at the stage where boosting the economy is the top priority. That still remains but what is important now is to strengthen our efforts to fight the epidemic by improving the health infrastructure and supporting the incomes of the poor who have been severely hit by the lockdown. The unemployment rate jumped from around 7% before the lockdown to about 27% at the end of April. Some additional expenditure has been planned but it may not be enough.

Do you see an opportunity for the Indian economy as it passes through this turbulence?

Every structural change creates new opportunities for those willing to respond. I hope we will look at these opportunities carefully and act much more speedily than we have done in the past. But first let us claw ourselves out of the current problem.

Source link

Articles You May Like

JPMorgan is buying fintech start-up 55ip to help financial advisors offer tax-efficient portfolios
RBI likely to keep interest rates unchanged, may revise growth projections: Industry experts
Here’s why women’s money decisions will shape the future for U.S.
CBIC waives penalty on QR code on e-invoices till March 31, 2021
Nikola stock craters after GM gives up equity stake in reworked deal

Leave a Reply

Your email address will not be published. Required fields are marked *