Chief Economic Advisor flags uncertainty over economic recovery

Economic growth this year will depend on when recovery begins, as it is now uncertain whether it will happen in the second half of the year or will be delayed to the next financial year, Chief Economic Advisor Krishnamurthy Subramanian has said.

“At the beginning of this financial year, in April when we were in the first few weeks of the lockdown, we had estimated growth to be at 1.5-2% this year, and that was conditioned on a V-shaped recovery in the second half of the year,” he told journalists on Thursday.

“What is uncertain now is whether that recovery will happen in the second half of the year or will it happen next year. Actual growth, therefore, will really depend critically on when the recovery happens,” Mr. Subramanian said.

His comments came a day after global ratings agencies S&P and Fitch forecast a contraction of 5% in the Indian economy this year, although they predicted a sharp recovery to record 8.5%-9.5% growth the following year.

The CEA refused to put specific numbers on the Centre’s own growth expectation for this year, only saying that the Finance Ministry is working with a “large range” of estimates, adding that “very low” growth and a possible decline in output are part of the baseline assumptions

Also read: Needed: fewer regulations for start-ups, says CEA Krishnamurthy Subramanian.

Both Fitch and S&P maintained India’s sovereign credit rating at the lowest investment grade, while Moody’s had also downgraded it to the same grade last week. Dr. Subramanian insisted that India’s fundamentals merited a better rating, noting that the country’s willingness and ability to pay back its loans are gold standard, especially as most debt is in domestic currency. With regard to debt monetisation, he said the pros and cons of all options are being evaluated and kept under consideration.

The CEA welcomed the agencies’ positive response to reforms announced in the stimulus package, especially in agriculture, saying that these would be critical for higher growth prospects next year.

The investment grade rating paves the way to move forward on the budget proposal for listing government bonds in international sovereign bond indices. In the long term, this could lead to the ability to raise $60 billion or more from these markets, he said.

With regard to the privatisation policy announced in the Aatmanirbhar package, he clarified that banking would be categorised as a strategic sector. This means that between one to four public sector banks will remain, while the rest will be merged or privatised.

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