Covid-19 crisis: Don't see a recession, recovery from Q2, says Rajiv Kumar

Amid criticism that the Union government’s Rs 1.7-trillion scheme is not enough to deal with the Covid-19 crisis, NITI Aayog Vice-Chairman Rajiv Kumar tells Indivjal Dhasmana that since the approach followed to give the package is graded, one can assume that more would be announced if there is requirement. Edited excerpts:

Many experts, including former finance minister P Chidambaram and economist Jean Drèze, are saying that the government’s package is not enough. Do you think that more is needed and it will come?

If you include the package by the Reserve Bank of India (RBI), the total comes to about Rs 4.5 trillion. The two packages have to be taken together because both the fiscal and monetary policies have to work in tandem. The total package constitutes 2 per cent of the country’s gross domestic product (GDP). Finance Minister (Nirmala Sitharaman) has clearly stated that we have adopted a graded approach. If there is more need, the government will act accordingly. The graded approach is simply to try and retain fiscal rectitude rather than go overboard. And since it is the graded approach, one can assume that more would be forthcoming as and when needed.

Is RBI’s liquidity push at a time when there is little demand for credit going to help the economy?

The criticism of RBI has so far been that it was not generating enough liquidity. More importantly, the RBI has incentivised banks to lend by reducing the reverse repo rate sharply and extending forbearance to lenders from their debt servicing. On the liquidity side, the RBI has primed the gun. As and when demand rises, banks will be in a position to give advances which are necessary. This slack in credit demand is not going to remain forever. Hopefully, it is a short-term phenomenon. Earlier, the credit off-take from banks had been declining sharply and that trend needed to be reversed. Now, the RBI has taken measures to reverse the trend which had for several quarters. Until this lockdown, credit enquiries were much higher than credit supply. NITI Aayog has shown this evidence on several occasions.

But the RBI's most steps are for three months only.

These can always be extended.

There are various estimates that give very pessimistic view of the Indian economy in 2020-21 or the calendar year 2020. For instance, Moody’s Investors Service pegged the growth at three-decade low of 2.5 per cent in 2020. What is your estimate?

Those who are making these annual GDP growth forecasts are very brave people and I am not. The better word is that they are foolhardy and I am not. Given the uncertainty in domestic as well as global markets, I think it is completely premature to talk about growth estimates for 2020-21. It depends on the severity, the length, the spread of this virus-created crisis. I am not going to hazard a guess at this stage. The only thing I can say is that the global economy could well go into recession as Kenneth Rogoff has said. But for India, I am hoping that the present crisis might end by June and the second quarter of FY21 could see recovery and growth. I don't expect two successive quarters of negative growth, which is a definition of recession. So I don’t foresee the Indian economy slipping into a recession.

Does this mean April-June quarter will see contraction in GDP?

I am not sure. But April-June will be severely impacted by this lockdown. I am not hazarding a guess.

The effect of lockdown on employment is very severe. Even if the economy is going to recover in the second quarter of FY21, jobs will not come back immediately. How long will it take to generate the jobs which have been lost?

The impact of lockdown is most severely felt on the services sector, including the informal sector. The informal sector’s ability to bounce back is as good as its ability to shut down when the demand falls. You can see that agriculture will continue as it is. I see employment coming back sharply in services sector, may not start rising from the previous levels. These sectors are hospitality, tourism, and trade. I can see a sharp bounce back as we normally refer to as V-shaped rather than U-shaped recovery in the services sector, which accounts for about 55 per cent of our economy.

As the government will have to incur much higher expenditure and revenues are not forthcoming, will we have to shun fiscal deficit targets or come out with a new road map?

It’s not time to talk about fiscal challenges. It is time to talk about how we will come out of this acute contingency in a shape that will minimise employment loss and maximise the chances of economic recovery. No country in the world is talking about fiscal deficit at this moment.

There are so many migrant workers crowded on state borders to go to their homes. Have the chances of the spread of virus not increased as there is no adherence to social distancing?
 

That is why the governments — both the Centre and the states — have been emphasising that they should remain where they are. All the arrangements are being made for that. I am just hoping that better sense will prevail. People moving across states are not going to help anybody.

Essentials are not reaching the people due to lack of transport facility and fear among shopkeepers that they will get infected?

Much has been done to facilitate transport of essentials. Nobody can take away individual’s fears. It requires a bit of courage. Prime Minister Narendra Modi in his Mann Ki Baat too complimented everybody who is part of providing essential services. There is thankfully very large number of people who are providing essential services and goods. That situation is well managed. The government is doing everything that it can to ensure that essential goods and services are maintained round the clock.