Singh, a long-term Congress stalwart who is often credited as the architect of India’s economic reforms programme, suggested direct cash assistance to protect livelihoods and retain spending power, government-backed credit guarantee schemes to make capital available for businesses, and institutional autonomy to fix the financial sector.
“I do not want to use words like ‘depression’ in a cavalier fashion,” said Singh in a conversation with the BBC, adding that a deep and prolonged economic slowdown was inevitable.
“This economic slowdown is caused by a humanitarian crisis. It is important to view this from the prism of sentiments in our society than mere economic numbers and methods,” he explained.
Singh’s warnings came amid Covid continuing its sharp rise in India, and economists predicting that the country’s GDP for FY2020-21 may sharply contract, leading to the worst technical recession in almost 50 years.
Singh says borrowing is the answer to fund direct cash transfers to help businesses with capital and credit. “Higher borrowing is inevitable… Even if we have to spend an additional 10% of the Gross Domestic Product (GDP) to cater to the military, health and economic challenges, it must be done.”
Talking about the fear around India’s high debt-to-GDP ratio, Singh said the country must not shy away from borrowing, but rather be prudent. If borrowing “can save lives, borders, restore livelihoods and boost economic growth, then it’s worth it,” he expounded.
Global economies in the past have gone through crises with proven economic tools, Singh pointed out. “Now we have an economic crisis caused by an epidemic which has induced fear and uncertainty in society, and monetary policy as an economic tool to counter this crisis is proving to be blunt,” Singh said.
Prominent economists, including Nobel-prize winning academic Abhijit Banerjee, believe that India should not be afraid to print money to fund welfare benefits. Many countries have already decided to print money to fund government spending. Singh too is not ruling out the need for it, but is of the opinion that it be used as a last resort.
“I am aware that the traditional fear of high inflation due to excess money supply is perhaps no longer valid in developed nations,” he said. “But for countries such as India, other than costs of institutional autonomy of the central bank, unbridled printing of money can have attendant impacts on currency, trade and imported inflation.”
According to Singh, the deep interlinkages that India now has with the world are a cause for concern. “What happens in the global economy will have a significant impact on India’s economy,” Singh said. “In this pandemic, the global economy is severely dented and that will be a big cause of concern for India.”