In an interview where she has staked a position markedly different to that of all other leading economists, Prof. Ashima Goyal, a member of the Prime Minister’s Economic Advisory Council, says it’s possible that India’s GDP could grow by 1% this financial year. She believes the range of India’s GDP performance will be between plus 1 and minus 3%. This is different to the range given by practically every other economist or rating agency. For example, the State Bank of India expects the economy to shrink by 6.8%, the ratings agency ICRA by 9.5% and the former chief statistician Pronab Sen by 12.5%.
In a 43-minute interview to Karan Thapar for The Wire, Prof. Goyal, who teaches at the Indira Gandhi Institute of Development Research in Mumbai, said India is likely to have a stop-start recovery over the next few months. This is because of the prevailing uncertainties as a result of a spate of state-wise or local lockdowns as well as the escalating Covid crisis.
She said the recovery seemed V-shaped in June but it has flattened out in July. She said the recovery also looks different when viewed from the standpoint of different sectors. It is V-shaped in telecom and automobile companies like Maruti, where small cars have seen sales matching those of last year June. However, in other sectors like restaurants and hotels it’s more like a L-shape recovery. A third category of sectors such as pharmaceuticals and IT seem to be doing even better than last year.
Prof. Goyal told The Wire she completely disagrees with practically every other economist or rating agency who have calculated that the fiscal stimulus element of the government’s 20.9 lakh crore package is only 1 or 1.2% of GDP. Asked specifically if she was saying all the others are wrong, Prof. Goyal replied: “Yes, I think so.”
Prof. Goyal said according to her the additional spending after the Covid crisis hit India amounts to 4% of GDP and this means that a fiscal stimulus of 4% has been delivered by the government and not 1% or 1.2%.
Prof. Goyal told The Wire that India cannot afford fiscal stimulus packages of up to 20-30% of GDP as we have seen in several western countries. She says Indian spending “has to be in a measured way”. We need to be far more aware of where we spend and how much we spend, she said.
However, Prof. Goyal made it clear that the “time is ripe” for further fiscal stimulus. She said what is needed is “a sequence of packages” and the government could afford “up to 2% of GDP” altogether.
Prof. Goyal said this is the right time for the first of these packages and she pointedly disagreed with Chief Economic Advisor, Krishnamurthy Subramanian, who told FICCI on July 23 that “the right point will be when vaccines come”. She said the government must not wait for a vaccine because the lockdown is under way and there is need for more stimulus at this moment.
Prof. Goyal told The Wire the sequence of packages which should constitute the next stimulus should avoid the possibility people in a crisis have a proclivity to save rather than spend. This, she said, has happened to the Direct Benefit Transfers to Jan Dhan accounts. Now what she called “temporary coupons” are needed which have to be spent within three months or they will expire.
Prof. Goyal said the packages needed to be a mixture of different elements. There was need for some infrastructure spending on things like housing for the poor, which she emphasised in particular. There is also need for more money to MSMEs because only 10% are covered by the earlier loan scheme. This time, however, the money must be conditioned on MSMEs retaining employment levels. The third element of the sequence of packages is, of course, the need to boost consumption through temporary coupons.
Speaking about the recovery the economy has seen in June, Prof. Goyal called it “genuine”. However, she added that for a variety of reasons, such as local or regional lockdowns and the continuing Corona cases, recovery in July plateaued.
Speaking about the performance of Indian agriculture Prof. Goyal told The Wire that because agriculture is only 15% of the economy it would have what she called a “middling” impact on growth. However, because 70% of the population live in rural India the impact on demand through their purchasing power would be greater.
Finally, Prof. Goyal also said the present escalation in Covid numbers is not as serious as it seems because of the size of the Indian population.
