Sanjeev Sanyal. File image 

The Covid Pandemic has caused the biggest economic shock since the great depression and second world war, but India has a plethora of tools to rebuild demand, said Sanjeev Sanyal at a panel discussion at the India Global Week. The Principal Economic Advisor in Finance Ministry also insisted that India has more ammunition, both from the fiscal front and the monetary front to alleviate the economic stress and would use them in a graded and calibrated fashion.

Lockdown & The Aftermath

Sanyal conceded that India went for a 'big' lockdown in March-end, but has gradually opened up sections of the economy from the end of April. The path of economic recovery has been a matter of elaborate discussion among experts. Sanyal asserted that the revival roadmap remained uncertain and simply throwing money at the problem may not lead to recovery. The noted economist said that Indian Government would not resort to re-inflate the economy to the pre-Covid levels because the fundamentals of the supply chains, geopolitics, technologies and consumer behaviour would be markedly different in the post-Covid world.

'Marathon, Not A Sprint'

Sanyal remarked that India from the very beginning of the Covid crisis focussed on specific ways to target demand and saw the whole situation as a marathon and not a sprint. He also differentiated India's policy measures on supply-side as well as the demand side from other countries including the likes of the US, UK and western European nations which implemented payouts to boost aggregate demand instantaneously.

Policy Making & India's Priorities

Sanyal quipped that policymaking in the aftermath of Covid is riddled with complexities due to the volatility and uncertainty about the future. He highlighted India's focus in providing a cushion to the most vulnerable sections of the society and the MSME sector. Sanyal detailed that Government intervened in multifarious ways, like using direct transfer of resources like food and money, utilising Unique Identification system to target the communities that needed the most support, 100 per cent guarantee in loans worth Rs. 3 Trillion to small industries.

More Government Support On The Way?

Defending India's approach to tackling Covid, Sanyal stressed that the country had more capability and room to use both fiscal and monetary tools contrary to opinion from several quarters. He pointed out that Indian Government still borrowed at 5.8% for 10-year papers unlike western European countries or the US as the interest rates in India remained significantly positive even at this juncture. On the fiscal front, Sanyal highlighted that India's debt to GDP is significantly lower than the rest of the world and there was still space to pump large infrastructure projects to rebuild demand as the economy opened up.

Sanyal also drew the US example of tackling the demand issue and pointed it as a proof to the view that large payouts need not provide second-order demand growth but could instead dry up the ammunition to provide help at a later stage. India has instead opted for several small packages, both monetary support from RBI and government's targetted, sector-specific measures. Sanyal hinted that more government support could arrive in the rebuild phase. India focused on freeing up agriculture, ringing in labour reforms, flexibility and emphasising privatisation and divestment in non-strategic areas to address the issue, the Principal Economic Advisor said.

2020 Another 1991?

Sanyal compared and contrasted the current situation with 1991 when India opened up its economy on the back of Balance of Payments crisis. While the country experienced a slow down now like in 1991, Sanyal highlighted the balance in macro-economy right now. Inflation remained close to zero while foreign exchange reserves stayed above half a trillion dollars of resources, asserted Sanyal while terming that the economy has stayed extremely stable on some fronts. This has opened up newer degrees of freedom on the supply side.

Turning Covid Crisis Into An Opportunity

Sanyal asserted that India remained prepared to bring in more reforms, both at the state level and the centre to turn the economic crisis into an opportunity of sorts. He also highlighted the efforts of several states which remained at the forefront of doing reforms in online and other areas.

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Covid crisis biggest economic shock since World War II, but India has the tools to rebuild demand - Times Now