Pant-pujara approach needed for economic revival
Fiscal policy must support growth till the pre-covid trajectory is achieved
Chief Economic Advisor (CEA) Krishnamurthy Subramanian on Friday highlighted the contrasting batting styles of cricketers Rishabh Pant and Cheteshwar Pujara in India’s recent test series victory against Australia as providing a template of the varying approaches Indian policymakers could take while putting the economy back on track.
“Like in cricket, even in economy, planning matters. When the ball is swinging around a lot, when there is a lot of uncertainty, you need to play carefully and focus on survival. Essentially, when the ball is swinging, bat like Pujara and when swing is gone, bat like Pant, which is what Indian policymakers should focus on,” he said during the press conference on the Economic Survey for 2020-21.
Subramanian said this Survey is dedicated to Covid-19 warriors, who supported the country during the once-in-a-century crisis.
On growth
“India focused on saving lives and livelihoods. It took short-term pain for long-term gains. While gross domestic product (GDP) growth will recover (and it has), lost human lives cannot be brought back. This was humane principle that guided India’s policy response. India was the only country to announce a slew of structural reforms,” the CEA said.
Ahead of the Budget, Union Finance Minister Nirmala Sitharaman tabled the Survey in both the Lok Sabha and Rajya Sabha on Friday.
Fiscal policy
The Survey highlights the potential of public investment, especially in a slowdown. It calls for fiscal policy to support growth. It also emphasises the need to rethink fiscal rules. “Fiscal policy must support growth till the pre-covid growth path is achieved again. Public investment spending is selffinancing in the medium term because it enables growth and crowds in public investment. In this context, India’s fiscal rules, which may not be enabling counter cyclical fiscal policies, must need a rethink,” Subramanian said.
On the correlation between lockdown and decline in cases and deaths, the CEA said that it is found across states, not just within a few states. Hence, the Survey infers that lockdown had a causal effect on saving lives and livelihoods. According to him, this strategy helped the country to prevent around 370,000 cases and 100,000 deaths.
He added, “Pandemic could have affected spending decisions by households and investments by corporate entities. These responses would have remained the same even without the lockdown, given the uncertainty around the virus.”
On rating agencies, Subramanian said their methodology needs correction as they affect foreign portfolio investments inflows in mechanically.
“If you take India’s entire external obligation, that amount is less than total forex reserve. Therefore, India actually resembles negative debt company, whose ability to repay by definition is 100 per cent. So on both willingness to pay and ability to pay, India should have the highest rating and that is consistent with large literature that highlights bias in sovereign ratings,” he observed.
Debt
Even if India were to have the real GDP growth rate as low as 3.8 per cent each year from FY23 to FY29, debt will still come down, Subramanian said. He added that the private sector needs to contribute more to innovation and research and development.
Subramanian said excessive regulation leads to excessive and opaque supervision and exercise of discretion, making a pitch for simple regulation and transparent supervision.
“India’s demand side measures were also different from other countries, were more calibrated, recognising the simple idea that pushing the accelerator works only when brakes are removed. Mega vaccination drive should enable recovery in services. V-shaped economic recovery without a second wave makes India a sui generis case in mature policymaking,” the CEA said.
To understand India’s policy response and the situation it faced in March 2020, just consider India’s local trains. It is always so crowded, with at least 500 people in each coach. This is just an example of how the situation was back then, Subramanian explained.
“LIKE IN CRICKET, EVEN IN ECONOMY, PLANNING MATTERS. WHEN THE BALL IS SWINGING AROUND A LOT, WHEN THERE IS A LOT OF UNCERTAINTY, YOU NEED TO PLAY CAREFULLY AND FOCUS ON SURVIVAL. ESSENTIALLY, WHEN THE BALL IS SWINGING, BAT LIKE PUJARA AND WHEN SWING IS GONE, BAT LIKE PANT, WHICH IS WHAT INDIAN POLICYMAKERS SHOULD FOCUS ON”
KRISHNAMURTHY SUBRAMANIAN, chief economic advisor