Easing of restrictions, capex spends will drive demand
- Economic recovery should continue
- Government open to ideas on stimulus for the economy
- If vaccination picks up, the third wave may not as intense
New Delhi: The pace of immunisation will be critical to battle the third wave says Chief Economic Advisor KV Subramanian to ET Now. He adds front-loading of capex and unlocking in states will boost recovery. Here are the edited excerpts from the interview.
Q The second wave of Covid-19 has stated ebbing. What is your assessment of where we stand as we begin unlocking?
CEA: I think the second wave is continuing to decline. In fact, the pace of decline is as rapid as the pace of rise. High frequency indicators are continuing recovery and with removal of restrictions happening across states, I think the recovery should get accelerated.
The announcement of front loading of the infrastructure spending and higher capital expenditure spending will have its positive spillovers on contact-sensitive sectors and the consumption as well.
Q The RBI has slashed FY22 GDP forecast to 9.5% vs 10.5%. You had pegged 11.5% in the economic survey. How are you looking at the numbers as to where we’re going to end this fiscal year after the kind of impact that we’ve seen from the second wave and of course the impending third wave?
CEA: Our analysis suggests that the impact shouldn’t be very large. Our own estimation, in the expected scenario which has manifested, suggests that the impact should not be very large but undeniably there will be some impact. The reason that the impact is not likely to be as large because the restrictions were heterogenous and asynchronous in timing. GST numbers, IIP, advance tax a much better despite the second wave. I think the recovery should continue and especially the vaccination effort is really critical to deal with a third wave.
Q Demand has been hit. What is the government doing to revive demand?
CEA: I think the vaccination effort is really critical. Front loading of capital expenditure will be an important component to bring construction activity and thereby will help the urban poor. So the combination of these two, and the restrictions being removed I think will be an important part in the driving of demand.
Q Does the Finance Ministry are a case for a fiscal stimulus?
CEA: As has been the case over the entire duration of the pandemic, the government is more than willing to listen to all the stakeholder and after seeing how the impact of this is panning out, we’ll be more than ready to respond. We are quite receptive and are considering the necessary measures for stressed areas.
Q Economists believe vaccine spends, free food till Diwali to 80 cr people and a likely higher allocation for MNREGA to constrain our fiscal space. Do you agree?
CEA: In times like these, I think the focus has to be on doing what is necessary and given the tax collections and recovery, it seems like that should not necessarily be as much of a constraint.