‘Cash transfer is easier on paper than in reality’

Expenditure Secretary T V SOMANATHAN, one of the architects of the Atmanirbhar Bharat stimulus package, tells Arup Roychoudhury in an interview that the government’s actions are not being determined by any fear of a ratings downgrade. He also says while he agrees with the chief economic advisor’s assessment of 2 per cent GDP growth in FY21, it could be lower. Edited excerpts:

"Every country has limits on what it can do. Those limits are not necessarily imposed by fear of ratings downgrades. I don’t think investors in India are making investments based on ratings agencies' estimates"

"As of now, I will go with the CEA’S (growth) projection of 2 per cent. There is nothing that has happened since then to say that it is completely unrealistic. But yes, there are downside risks to that estimate"

There has been criticism regarding the package announced by the finance minister. One is that there should have been more direct cash transfers for the poor and migrants. Another is that the measures, especially the ones regarding industry, had nothing to do with Covid-19. How would you respond?

This was not specifically a Covid package. It’s a package for a new self-reliant India. I think what the poor and migrants needed more than cash was food. And food has been provided, through the central and state governments. Even before the latest announcements, a lot of food grain was

provided to the state governments for migrants. Cash is not necessarily the immediate requirement of someone trying to get home.

Second, how much cash can you give which is enough? As the finance minister repeatedly said we feel very much for them, but nothing that we can do would be enough, because what can replace weeks and months of difficulties that they have been enduring, what would be the right figure, and how to deliver that figure to a group of people who are moving and whose bank accounts and identities are unknown. There is an issue of feasibility of doing any cash transfer. If not transferred through a bank account, cash is notoriously susceptible to be used up by the wrong people.

Making cash transfers is much easier on paper than in actuality, when you are talking about making cash transfers to migrants. It is a very complex proposition. This is why we have been very liberal with free food.

Given that the Centre now has a better idea of the economic impact of the pandemic, is there a need for further measures?

Currently, I am not aware of any plans for new measures. It is not yet clear what the economic end-game of this pandemic will be, because we are still in a lockdown. Hopefully, after May 31, there would be a further easing and return to normalcy. But we also have to see how consumer behavior and producer behavior have changed in this period. It is too early to say whether on June 1, after some more curbs are eased, people will get back to pre-lockdown activities. Health concerns may not disappear, and social distancing may continue.

It is too early to make good estimates of the economic impact. We are still in the second month of the financial year, with 10 more months left.

Is there a fear of ratings downgrade? Finance ministry officials have met ratings agencies. What have been the discussions like?

What ratings agencies do is essentially their business. Our decisions are not influenced by what ratings agencies will do because we feel that we are inherently in a sound macro-economic and financial position. We have moderate levels of debt-gdp ratio by global standards. We have a high level of forex reserves. Even after the slowdown, we have an economy with a much higher growth potential compared to not only developed but even emerging economies.

Fear of external factors being imposed by agencies, like ratings agencies, is not what is determining our course of action. Having said that, every country has limits on what it can do. Those limits are not necessarily imposed by fear of ratings downgrades. And frankly, I don’t think investors in India are making investments based on ratings agencies’ estimates. India has different investment propositions. Rating downgrades are not going to drive them.

In an interview earlier this month, the CEA had said India’s economy is expected to grow 2 per cent in 2020-21. That is more optimistic than other agencies.

Unlike private research analysts, we don’t have the luxury of giving short-term forecasts and then adjusting them regularly. We will wait for something more concrete. As of now, I would go with the CEA’S projection of 2 per cent. There is nothing that has happened since then to say that it is completely unrealistic. But yes, there are downside risks to that estimate. It could be lower than that too. I don’t see much upside risk to 2 per cent, but I can see downside risk.

States are still complaining that you have not given them pending dues and they have also criticised the conditions placed for higher borrowings.

There are two issues here. One is pending dues. On GST compensation dues, more than ~ 14,000 crore was paid in April. Some more dues are pending. There is every effort to pay as soon as we have the resources to pay with. I am optimistic that as much as possible will get released.

On the conditionalities, four conditions are such that they are actually administrative conditions which most of the states are likely to be able to achieve in one permutation or another. It is not an absolute. You finish three out of four conditions, you get the permission for the last 0.5 per cent. I think the conditions are realistic for most states. They are not nonfeasible. Some are easy for some states, some are difficult. But reform is never always easy to carry out.