Won’t spend stimulus money ‘blindly’, says Sanjeev Sanyal

Principal Economic Advisor Sanjeev Sanyal on Wednesday said the government would be mindful of splurging money in the next round of stimulus, which would aim at asset creation in a bid to boost demand in the economy.

“We are a fiscally conservative government as we tend to stick to the fiscal trajectory… Our debt-to- GDP ratio is much lower than many countries and there is a case for allowing it to go up to inflate demand. But we will not spend blindly. We will be careful of what we spend on,” said Sanyal, while speaking at the 115th Annual Session of PHD Chamber of Commerce and Industry.

He said infrastructure development would be an integral part of the government’s demand revival efforts and “extra-budgetary resources” would be made available for it.

The government’s economic advisor stressed there was no demand-driven inflation witnessed as yet in the economy. “If you look at the gap between the WPI (wholesale price index) and the CPI (consumer price index), you will know that comparatively high levels of CPI are driven by disruption caused by the lockdown. The exchange rate is under tremendous pressure to appreciate and India’s current account is in large surplus, suggesting we are in a position to reflate demand internally,” he said.

At the event, Ridham Desai, Morgan Stanley India’s managing director, hailed the government’s latest reform measures, especially farm and labour law changes, and predicted that the manufacturing output would treble over the next 10 years as India would become an attractive investment destination.

“Lack of capex has been the biggest drag on India’s growth as a majority of FDI (foreign direct investment) is concentrated in buying existing businesses rather than setting up shop. The changes brought about in the form of GST, the Real Estate (Regulation and Development) Act, the bankruptcy code, and labour and farm law changes, along with production-linked incentives, will address the big issue in the economy — capex,” said Desai. He emphasised that manufacturing companies are looking at diversifying their supply chain and they would be eager to invest in India. “We need to continue to invest in infrastructure. A lot of government’s fiscal efforts will be on creating infra — much better than doling out incentives in the form of tax breaks. I think you need to address the supply side,” Desai said.

Veteran banker and former chairman of ICICI Bank K V Kamath exuded confidence that lending through banking channels would go up from the third quarter of this fiscal year. “Banks are assessing the impact of GDP slowdown on their clients. The confidence level of banks will improve by the second quarter and lending should start by the third quarter. Lending is the dharma and karma of bankers and it will happen,” he said.

“OUR DEBT-TO-GDP RATIO IS MUCH LOWER THAN MANY COUNTRIES AND THERE IS A CASE FOR ALLOWING IT TO GO UP TO INFLATE DEMAND” SANJEEV SANYAL Principal Economic Advisor “THE CONFIDENCE LEVEL OF BANKS WILL IMPROVE BY THE SECOND QUARTER AND LENDING SHOULD START BY THE THIRD QUARTER” K V KAMATH

Former chairman of ICICI Bank

“A LOT OF GOVERNMENT’S FISCAL EFFORTS WILL BE ON CREATING INFRASTRUCTURE – MUCH BETTER THAN DOLING OUT INCENTIVES IN THE FORM OF TAX BREAKS”

RIDHAM DESAI

MD, Morgan Stanley India