Indian economy will speed up by third quarter: K V Subramanian, CEA

Krishnamurthy Subramanian, Chief Economic Adviser to the Government of India, talks about the impact of COVID-19 on the economy, IMF projection of India’s GDP growth in FY21, stimulus package and opportunities of growth that pandemic is throwing towards India among others during an exclusive interview to Swati Khandelwal, Zee Business. Edited Excerpts:

Q: The lockdown amid COVID-19 is having its impact on the economy as it has stopped almost every activity like manufacturing, sales or something else. What is your view on this and how big is this concern as recovery will take time and is going to be a challenging period?

A: We are going through a phase that anyone would have not experienced in our lifetime. That’s why we will have to guess what the future hold. The future economic estimates can be projected by applying a proxy and the Spanish Flu of 1918 could show a direction to a large extent. The pandemic was very dangerous, which infected almost one-third of the population, and the death rate stood at around 10 per cent. Apart from this, when we think about the economy than it has been seen that countries or places that took steps like lockdown were taken quickly and for a long period than the death rate was quite low and its effect on the economy in a long-term i.e. in one year was slightly low.

At times, we talk about the pressure and you in your question said that the lockdown may improve the health outcome but what in the case of the economy. And you are correct in the short run but when it is seen in the long run than the pressure is not visible. Thus, the taken steps are necessary and we know that it is impacting the economy, but it is necessary for the life and the livelihood. The Spanish Flu also highlights this.

Q: The International Monetary Fund has projected the Indian economy to grow at 1.9 per cent in 2020-21. Do you think that these numbers are realistic or there can be a change? What is your view on it?

A: As I was saying earlier that we should be cautious while looking at the estimates that are made as the existing situation is going to change soon. Thus, every month’s analysis should be based on the situation of the month. IMF’s analysis is a baseline estimate and they have clearly stated that this is a baseline estimate. Thus, giving too much weightage to the same will not be right as the uncertainties are quite high.  

Even, I believe that there are uncertainties but I am sure India’s position will remain better than other countries in respect to infection and economy when the history of KOVID-19 will be written and I will pray for it. India’s position will be better because we took the steps at the early stage and when it comes to the IMF’s forecast of 1.9 per cent then it will be seen as a baseline. According to today's estimates, this may be fine, but as the situation changes, we will have to keep checking the assumption that it is correct or not. It is fine today. But the good thing about IMF’s estimate is that it says the Indian economy will grow by 1.9 per cent when the world economy will shrink by 3 per cent.

But, there are no two opinions that the global pandemic will have its impact in every country of this world including India. If you talk about the first quarter than it will have a heavy impact in it but I feel that it will reduce in the second quarter, while the economy will speed up in the third and the fourth quarter. If we have a look on the Spanish Flu of 1918 then we will find that the GDP output level came in V-shape, i.e. if the output of the fall and recovery is plotted than a V-shape pattern will be formed. Hopefully, a similar pattern can be seen in the case of COVID-19 but this will be seen in future. I feel the current estimation of 1.9 per cent is correct but with the warnings.

Q: A stimulus package is required to support every industry even the finance minister has talked about the same. How will you prioritize the things as every industry needs support at present?

A: We are working on a stimulus package at present. When it comes to priorities then the first priority will be given in the availability of the liquidity. The liquidity available with the companies has come down during the lockdown because their cost and expenses have remained almost the same, maybe slightly low, but they have faced issues on the side of revenues. Apart from this, when compared to other companies, we are going through the COVID-19 situation with an extra concern related to the financial sector. We were under a stress before this episode and that’s why we will have to pay additional attention to the financial sector. This is why the steps taken by the Reserve Bank of India are very important as it will have a major impact on the liquidity that we can provide.

Besides, a package of cash transfers was announced for the vulnerable sections on March 24, 2020, and we are thinking to take some steps on this front. At the same time, we are also thinking about the migrant labours, who are a part of this vulnerable section, and the sectors related to them. We have studied the suggestions that we have received and had discussions on them. 

I would like to throw light on two aspects and they are (i) many times when you look at the social media you will find that people saying that the UK has announced a package which is 15 per cent equivalent to their GDP. But this figure is not correct because it had loans which a guarantee of 350 billion pounds and the government expenses in the same would come around 35-50 billion pounds. So, talking about the 350 billion pounds by adding is similar to a condition in which you took a pomegranate and an apple and added both of them together and then said that there are these many pomegranates, which is not right. The actual package is equivalent to 3.7 per cent of the GDP of the United Kingdom. So, we must not compare things by taking the wrong figures that are available on social media. 

Secondly, we should also keep an eye on the package of the emerging markets because we have constraints as compared to the advanced economies like tax base is low and we are also supposed to pay attention to the sovereign ratings. So, this is also an aspect and we must take care of the macro factors. So, the expectations should be realistic in terms of figures and macro factors.

Q: Do you think that the second round of package can be announced if uncertainties continue to grow even after the first round of package is announced amid the lockdown?

A: It is a very good point as possibilities are there that our fight against this global pandemic may expand and go for a long time, which may ask us to take further steps and we must keep a room for it. This is also a consideration, and we have had a discussion on it.

Q: The lockdown is partially being lifted as industries are slowly being added into the essential services category and allowed to function by following the norms. But, there are few business segments like airlines, hotel & restaurants, cinema, and shopping malls have been left aside and it doesn’t seem that relaxations will be granted to this segment in near future. This lockdown is having a bad impact on this industry as well as employment. So, what is your view on this segment, i.e. special attention will not be paid on the segment or relaxations will be granted to this scope of business as well?

A: A few days ago, I was looking at a laser image of Europe and America where the European sky was clear and didn’t have any planes but too many planes were visible on the sky of America. With this, you can have a look at the difference between the infections in the two regions, which is huge. I am sighting this as an example because social distancing is possible in few sectors where interpersonal interaction for the economic perspective is not necessary. So, it is easy to maintain social distancing in these sectors. But, maintaining social distancing in the service sector you are talking about is very difficult. May we think about opening the sector but it has a capability of spreading the infection, which will create an economic burden and our population/citizens will have to bear with it. Therefore, we have to consider factors like social distancing while taking decisions on different sectors and we do the same. 

The second thing is related to work like you are conducting this interview and social distancing is being maintained in the process. So, economic activity can happen in the form of work from home. Similarly, there are many sectors where work from home is possible and this is why they can be opened as they can carry on with their economic activities by maintaining the social distancing norms. 

The last parameter is that we will have to look at a sector's contribution in terms of economic activity, gross value added or the GDP. And, we are analyzing these few parameters before taking any decision on it. 

Q: The existing situation is also throwing a great opportunity for India to grow by turning into a manufacturing hub. So, let us know about the government plans, like incentivizing those who are willing to come and invest in India, to reap on the opportunity that is available?

A: It is an important issue. Earlier in our economic survey, quite before COVID-19, released in January 2020, we wrote that many companies from China and other countries are looking forward towards India. Therefore, our idea Assemble in India for the world that we gave becomes more important at present. 

If we look at it from another perspective and talk about diversification, i.e. instead of putting all the eggs in the same bag if they are kept in several bags. So, when we have a look at this type of diversification then huge diversification has been seen in the foreign portfolio investments and it is good, globally. But, when it comes to trade than the diversification has been very low as compared to portfolio investment. But, after this COVID-19 episode, the multinational enterprises are looking at the strategy of diversification that they applied in the foreign investment and put the eggs in different bags. This is something that is presenting a great opportunity to India because we are a big market and it is supported by the availability of labours, which can provide products that is equivalent to China. This is why the government is working on reforms so that it can attract investments. When it comes to FDI than in the majority of sectors it comes through an automatic route.

Indian economy will speed up by third quarter: K V Subramanian, CEA

Krishnamurthy Subramanian, Chief Economic Adviser to the Government of India, talks about the impact of COVID-19 on the economy, IMF projection of India’s GDP growth in FY21, stimulus package and opportunities of growth that pandemic is throwing towards India among others during an exclusive interview to Swati Khandelwal, Zee Business. Edited Excerpts:

Q: The lockdown amid COVID-19 is having its impact on the economy as it has stopped almost every activity like manufacturing, sales or something else. What is your view on this and how big is this concern as recovery will take time and is going to be a challenging period?

A: We are going through a phase that anyone would have not experienced in our lifetime. That’s why we will have to guess what the future hold. The future economic estimates can be projected by applying a proxy and the Spanish Flu of 1918 could show a direction to a large extent. The pandemic was very dangerous, which infected almost one-third of the population, and the death rate stood at around 10 per cent. Apart from this, when we think about the economy than it has been seen that countries or places that took steps like lockdown were taken quickly and for a long period than the death rate was quite low and its effect on the economy in a long-term i.e. in one year was slightly low.

At times, we talk about the pressure and you in your question said that the lockdown may improve the health outcome but what in the case of the economy. And you are correct in the short run but when it is seen in the long run than the pressure is not visible. Thus, the taken steps are necessary and we know that it is impacting the economy, but it is necessary for the life and the livelihood. The Spanish Flu also highlights this.

Q: The International Monetary Fund has projected the Indian economy to grow at 1.9 per cent in 2020-21. Do you think that these numbers are realistic or there can be a change? What is your view on it?

A: As I was saying earlier that we should be cautious while looking at the estimates that are made as the existing situation is going to change soon. Thus, every month’s analysis should be based on the situation of the month. IMF’s analysis is a baseline estimate and they have clearly stated that this is a baseline estimate. Thus, giving too much weightage to the same will not be right as the uncertainties are quite high.  

Even, I believe that there are uncertainties but I am sure India’s position will remain better than other countries in respect to infection and economy when the history of KOVID-19 will be written and I will pray for it. India’s position will be better because we took the steps at the early stage and when it comes to the IMF’s forecast of 1.9 per cent then it will be seen as a baseline. According to today's estimates, this may be fine, but as the situation changes, we will have to keep checking the assumption that it is correct or not. It is fine today. But the good thing about IMF’s estimate is that it says the Indian economy will grow by 1.9 per cent when the world economy will shrink by 3 per cent.

But, there are no two opinions that the global pandemic will have its impact in every country of this world including India. If you talk about the first quarter than it will have a heavy impact in it but I feel that it will reduce in the second quarter, while the economy will speed up in the third and the fourth quarter. If we have a look on the Spanish Flu of 1918 then we will find that the GDP output level came in V-shape, i.e. if the output of the fall and recovery is plotted than a V-shape pattern will be formed. Hopefully, a similar pattern can be seen in the case of COVID-19 but this will be seen in future. I feel the current estimation of 1.9 per cent is correct but with the warnings.

Q: A stimulus package is required to support every industry even the finance minister has talked about the same. How will you prioritize the things as every industry needs support at present?

A: We are working on a stimulus package at present. When it comes to priorities then the first priority will be given in the availability of the liquidity. The liquidity available with the companies has come down during the lockdown because their cost and expenses have remained almost the same, maybe slightly low, but they have faced issues on the side of revenues. Apart from this, when compared to other companies, we are going through the COVID-19 situation with an extra concern related to the financial sector. We were under a stress before this episode and that’s why we will have to pay additional attention to the financial sector. This is why the steps taken by the Reserve Bank of India are very important as it will have a major impact on the liquidity that we can provide.

Besides, a package of cash transfers was announced for the vulnerable sections on March 24, 2020, and we are thinking to take some steps on this front. At the same time, we are also thinking about the migrant labours, who are a part of this vulnerable section, and the sectors related to them. We have studied the suggestions that we have received and had discussions on them. 

I would like to throw light on two aspects and they are (i) many times when you look at the social media you will find that people saying that the UK has announced a package which is 15 per cent equivalent to their GDP. But this figure is not correct because it had loans which a guarantee of 350 billion pounds and the government expenses in the same would come around 35-50 billion pounds. So, talking about the 350 billion pounds by adding is similar to a condition in which you took a pomegranate and an apple and added both of them together and then said that there are these many pomegranates, which is not right. The actual package is equivalent to 3.7 per cent of the GDP of the United Kingdom. So, we must not compare things by taking the wrong figures that are available on social media. 

Secondly, we should also keep an eye on the package of the emerging markets because we have constraints as compared to the advanced economies like tax base is low and we are also supposed to pay attention to the sovereign ratings. So, this is also an aspect and we must take care of the macro factors. So, the expectations should be realistic in terms of figures and macro factors.

Q: Do you think that the second round of package can be announced if uncertainties continue to grow even after the first round of package is announced amid the lockdown?

A: It is a very good point as possibilities are there that our fight against this global pandemic may expand and go for a long time, which may ask us to take further steps and we must keep a room for it. This is also a consideration, and we have had a discussion on it.

Q: The lockdown is partially being lifted as industries are slowly being added into the essential services category and allowed to function by following the norms. But, there are few business segments like airlines, hotel & restaurants, cinema, and shopping malls have been left aside and it doesn’t seem that relaxations will be granted to this segment in near future. This lockdown is having a bad impact on this industry as well as employment. So, what is your view on this segment, i.e. special attention will not be paid on the segment or relaxations will be granted to this scope of business as well?

A: A few days ago, I was looking at a laser image of Europe and America where the European sky was clear and didn’t have any planes but too many planes were visible on the sky of America. With this, you can have a look at the difference between the infections in the two regions, which is huge. I am sighting this as an example because social distancing is possible in few sectors where interpersonal interaction for the economic perspective is not necessary. So, it is easy to maintain social distancing in these sectors. But, maintaining social distancing in the service sector you are talking about is very difficult. May we think about opening the sector but it has a capability of spreading the infection, which will create an economic burden and our population/citizens will have to bear with it. Therefore, we have to consider factors like social distancing while taking decisions on different sectors and we do the same. 

The second thing is related to work like you are conducting this interview and social distancing is being maintained in the process. So, economic activity can happen in the form of work from home. Similarly, there are many sectors where work from home is possible and this is why they can be opened as they can carry on with their economic activities by maintaining the social distancing norms. 

The last parameter is that we will have to look at a sector's contribution in terms of economic activity, gross value added or the GDP. And, we are analyzing these few parameters before taking any decision on it. 

Q: The existing situation is also throwing a great opportunity for India to grow by turning into a manufacturing hub. So, let us know about the government plans, like incentivizing those who are willing to come and invest in India, to reap on the opportunity that is available?

A: It is an important issue. Earlier in our economic survey, quite before COVID-19, released in January 2020, we wrote that many companies from China and other countries are looking forward towards India. Therefore, our idea Assemble in India for the world that we gave becomes more important at present. 

If we look at it from another perspective and talk about diversification, i.e. instead of putting all the eggs in the same bag if they are kept in several bags. So, when we have a look at this type of diversification then huge diversification has been seen in the foreign portfolio investments and it is good, globally. But, when it comes to trade than the diversification has been very low as compared to portfolio investment. But, after this COVID-19 episode, the multinational enterprises are looking at the strategy of diversification that they applied in the foreign investment and put the eggs in different bags. This is something that is presenting a great opportunity to India because we are a big market and it is supported by the availability of labours, which can provide products that is equivalent to China. This is why the government is working on reforms so that it can attract investments. When it comes to FDI than in the majority of sectors it comes through an automatic route.

Many relaxations were introduced in the FDI norms in August 2019 and I think it will encourage FDI in India. And, we have received FDI of around 350 billion in the last 5 years, which stood at around 180 billion in the previous 5 years. The steps taken by us have increased the level of FDI in India and we are also paying attention to reforms so that we can reap the benefits of this opportunity.

See Zee Business Live TV Streaming Below:

Many relaxations were introduced in the FDI norms in August 2019 and I think it will encourage FDI in India. And, we have received FDI of around 350 billion in the last 5 years, which stood at around 180 billion in the previous 5 years. The steps taken by us have increased the level of FDI in India and we are also paying attention to reforms so that we can reap the benefits of this opportunity.