India will be a V-shaped economic recovery:
Chief Economic Advisor
Big reforms in land, labour, law and liquidity coming
13 May 2020, New Delhi
Dr K V Subramanian, Chief Economic Advisor to Government of India has predicted a V-shaped recovery for Indian economy. He cited the example of rapid economic rebound after Spanish flu, which had a much higher kill rate. “Most people are more pessimistic than they need to be,” he remarked.
The CEA was addressing a virtual conference organized by All India Management Association (AIMA). The discussion was moderated by Mr Harsh Pati Singhania, Senior Vice President, AIMA.
The CEA said that the stimulus package would address the supply side impact with liquidity injection. Businesses do not have the revenue while they are bearing the fixed costs and their variable costs have not decline much, he pointed out. “The liquidity issue may create solvency problems for firms,” he remarked.
However, he insisted that money had to be targeted on sunrise sectors and not the sunset sectors where firms were already in trouble because of shift in demand. “Creative destruction is required in market economies and the inefficient firms have to die and the workers have to be reallocated,” he said.
The CEA said that India is in a 1991 kind of the situation and likewise the country is responding with radical reforms. He listed land, labour, law and liquidity as the key areas of big reforms. He pointed out that Uttar Pradesh, Madhya Pradesh and Gujarat had announced fundamental labour reforms and Karnataka had done important land reforms. He hinted at substantial reforms in the agriculture sector to increase the bargaining power of the small and marginal farmers. “There is no need to do anything for the rich farmers,” he said.
He expected reforms in public sector banks, as they were reluctant to lend before Covid and have remained reluctant during Covid. “Banks were nationalized to help in times like these,” he said. He noted that the government’s 100% guarantee of MSME loans would encourage banks to lend and the package for NBFCs will also help the MSMEs.
The CEA said that a measured dose of monetizing would not spike inflation because of Covid’s deflationary impact. “Monetization’s benefits are greater than the costs at this moment,” he said.
The CEA said that the stimulus measures announced by the Finance Minister today were only one-third of the story. He suggested that further announcements would be significantly reform oriented.
Explaining the government’s ‘Atmnirbhar Bharat’ policy, the CEA said that self-reliance was aimed only at the strategic sectors such as health, defence and telecom. “We’re not closing the door as that would stop competition and lead to complacency,” he said. Self-reliance also means Indian firms producing and innovating for Indian consumers, he added. “Atmanirbhar Bharat means tailoring products and services for the bottom of the pyramid and not catering just to the top 30% of the population,” he said.
Mr Harsh Pati Singhania congratulated the government on the generous package for the MSMEs and pointed out that the large companies also needed to be cared for as they formed the nucleus of the ecosystem in which the MSMEs operate. He also wanted the government to address the issue of labour availability at a time when the industry was trying to reopen.
The CEA said that the industry had to hire local workers even at higher costs and invest in the safety and skills of the migrant workers. He said that the government was trying to help the migrant workers by introducing a national ration card.
The conference was attended by about 400 management professionals.