‘Govt. had been reticent about a large stimulus earlier so as to conserve resources for the future’
In a fresh signal that the government could unveil another stimulus package soon, the Principal Economic Advisor in the Finance Ministry on Thursday said that the time was right for a generic push to spur demand in the economy.
The official’s remarks come on the back of Finance Minister Nirmala Sitharaman’s statement on Tuesday that she had not shut the door on another relief and stimulus package to revive the economy, which had shrunk an estimated 23.9% in the April-June quarter.
“The general problem is that there has been a shock to the system and we need to rebuild demand,” Principal Economic Advisor Sanjeev Sanyal said at the CII Financial Markets summit. “Some of it is coming back naturally, but not in every sector such as hospitality.” Mr. Sanyal stressed that the government had been ‘reticent to provide a large demand stimulus at the time of the lockdown as there was no point in pushing the accelerator with one foot on the brake.’
“We took a call that if we use up all our resources during April, May, June, July or August, then we won’t have resources to push later on. Now, as we are getting off the brake, we do want to press the accelerator,” stressed Mr. Sanyal. “The time has come for a generic push for reinflating demand in a fuller sort of way; not just provide safety nets as we had been doing so far,” he added.
With Prime Minister Narendra Modi expected to meet industry captains and large global investors soon, Mr. Sanyal urged domestic businesses to refrain from seeking sectoral sops such as interest subventions.
“Many of you will be interacting with the PM soon. Do talk to him, this is a moment in history that we do want to do big things. So, please do not go with the kind of ideas often seen in these meetings, seeking some subvention… Please do not waste our time with this. Think big. Ask for big things and if it can be done, we will do it,” he said. Mr. Sanyal pointed out how ‘difficult’ changes like labour laws and agricultural market liberalisation had been pushed through.
Terming reforms in the legal system and the police critical, Mr. Sanyal said a national debate was needed to push them through. “The single biggest constraint to India’s growth is the poor quality of contract enforcement and legal resolution,” he added.
The nitty-gritties for including Indian bonds in global bond indices were also being ironed out, Mr Sanyal said. “Those who make the bond indices – JP Morgan, Bloomberg, Barclays… they have looked at [the changes we have made on ownership limits that restricted India’s inclusion], are happy with it and holding consultations with their investors.”