India may be in for a near zero growth year and timing is vital for more measures to support economic recovery as the pandemic is still holding back economic activities from getting back to normal, according to a government official.
With the central government already having stepped up its borrowings by 53% to ₹12 trillion this fiscal for economic and humanitarian measures, the finance ministry wants to make sure that more measures should be well-timed so that they do not get lost in the uncertainty and loss of confidence caused by the coronavirus crisis.
If you time a shot very well it goes to the boundary, else you get caught, expenditure secretary T.V. Somanathan explained at a recent webinar using an analogy from cricket. The official view is that stalled economic activities, especially services, are at present not very responsive to an economic stimulus. Services account for more than half of India’s gross domestic product.
“I think the key point before us is what is the right time at which further measures are appropriate. Then of course, there is the question of what those measures are. Right now, the evidence is that the problem is not susceptible to stimulation by fiscal or (any other) government measures. It is not as if people are waiting for something to be done by the government and then they can go out and resume normal economic activity,” said Somanathan at a webinar hosted by Dun & Bradstreet India on the possible roadmap for economic recovery.
Although many analysts have predicted an economic contraction in the current fiscal, Somanathan said he was not very sure of that conclusion.
“I am not sure if we will actually contract this year though that is very much a possibility. It is also a possibility that we might be at zero percent growth or even marginally positive if the last two quarters of this year are very positive. So, I am keeping my fingers crossed. I have not yet come to the conclusion that it will be a negative growth but it is very much a possibility,” said the official.
The finance ministry is optimistic about a ‘V’ shaped economic recovery although a lot could depend on how the pandemic situation evolves.
“I will say this year, we may be somewhere near zero plus or minus a couple of percentage points in terms of economic growth. I think it is a year that for all practical purposes is a non-growth year. It is like a gap between two points with a ‘V’ in between. But I do foresee that it is a V and not a U,” said Somanathan.
Somanathan explained that economic activity stays below normal because of health related fear and many parts of the country are still vulnerable.
“Cinemas are closed, restaurants are technically open but not serving many customers, malls have very few footfalls. These are spheres of activity that I do not think a fiscal stimulus or a diktat from government can make people re-enter… That is something that will come when it comes. But I am sure it will come and it is not far away. At that time, the government can help it along a little bit with a few measures here and there,” explained the official.
Somanathan said the pace of recovery was more linked to how the pandemic situation evolves rather than what the government does. “Assuming we are close to the worst of it, in 2021-22, we should see a fairly rapid recovery. And I think the conditions are in place to make that sustainable recovery that will then continue beyond 2021-22 into the foreseeable future,” Somanathan said.
He also said that this was a special year and that the government was not going to stick to artificial fiscal deficit targets fixed in a different era. “We have bid goodbye to that. Nevertheless, we do want to be fiscally prudent, we want India to be on a sustainable long-term growth path, which means that the government needs to have healthy finances,” he said.