Next fiscal step likely after vaccine to cure Covid-19 comes: CEA

Says vaccine is not very far off and when it comes, uncertainty about the virus will considerably go down and the time will then be ripe for generating demand for discretionary spending

Chief Economic Advisor Krishnamurthy Subramanian hinted on Wednesday that the next set of fiscal measures could be announced after a vaccine was developed against Covid-19. The vaccine, he said, would end uncertainty, prompting people to spend money on discretionary consumption. 

Subramanian also said the goal to become the third-largest economy in the world could not be achieved with the current health of banks. He urged banks to use technology and data analytics for large corporate borrowings to reduce defaults. “It (fiscal support) is not a matter of 'if' but 'when'," he said at a Ficci event, replying to a question on further measures from the government. 

He said the Covid vaccine was not far-off. “The right point will be when vaccines come and thereby uncertainty goes down. I think that time will be very right for the fiscal push, which will really generate demand even for discretionary items," he said. 

While all eyes are on whether the Indian Council of Medical Research (ICMR) comes out with the vaccine by August 15, its chief, Balram Bhargava, last week said human trials of the vaccine had begun at different sites, each of which would do clinical testing on 1,000 volunteers. “Sixty per cent of vaccines supplied in the world are of the Indian origin... Any vaccine candidate produced in any part of the world will have to be scaled up by India or China. We are putting all our efforts to fast track the vaccine," Bhargava had said.

The CEA said the government was willing to do whatever was necessary in terms of fiscal support, but the timing was extremely important. “Till we have uncertainty, even if people have money in their pockets, they may decide to keep it in their bank," he said. 

To buttress his point, he said currently the money given through the Pradhan Mantri Jan Dhan Yojana (PMJDY) was not spent but saved, even as these accounts had very high marginal propensity to consume.  

“Demand is important, countercyclical policy is important, but the timing is also as important to ensure value for money spent,” he added.

Finance Minister Nirmala Sitharaman had said on Tuesday that the government was open to taking more actions to boost economic recovery. 

To deal with the coronavirus crisis, the government in May had announced one of the world’s biggest stimulus packages, worth Rs 20.97 trillion, with a focus on the survival of the business and drawing a road map for the revival of the economy. Experts and analysts said the package, whose fiscal cost was much less than the government's claims largely focussed on the supply side and hardly addressed the demand side constraints.

Subramanian said spending by the government was one of the segments of gross domestic product (GDP) -- others being consumption, investments and net exports. Contribution of all those is important for growth, he said.

The CEA laid emphasis on improving the health of the banking sector by using technology and data analytics to improve the quality of corporate lending. He said while some banks used data analytics for retail loans, it was not done for large corporate lending, which resulted in defaults. "Using technology and data analytics for large corporate lending is very far away from the frontier," he said.

“If you look at the financial statements of large corporate defaulters in 2013-14, it would be clear that each of these companies had problems in the quality of their statements,” he said. 

Subramanian said India lagged behind in global size, which had affected investment. State Bank of India is the only bank which is on the top 100 global banks’ list.

He pointed out that the markets did not function 100 per cent perfectly at the time of the crisis. 

He sought to differentiate between self-sufficiency and self-reliance. He said self-reliance could not be built without cutting-edge technology and without competition.