Won't splurge stimulus money, infra spending to be key: Sanjeev Sanyal

Govt's economic advisor stresses there is no demand-driven inflation yet in the economy

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

“We are a fiscally-conservative government as we typically 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 as to what we spend on,” Sanyal said while speaking at the 115th Annual Session of PHD Chamber of Commerce and Industry on Wednesday.

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

The government’s economic advisor stressed that there was no demand-driven inflation as yet in the economy. “If you look at the gap between WPI (wholesale price index) and CPI (consumer price index), you will know that comparatively high level of CPI is 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 that we are in a position to reflate demand internally,” he said.

At the event, Morgan Stanley India managing director Ridham Desai hailed the government's latest reform measures, especially farm and labour law changes, to predict that manufacturing output will triple in next 10 years as India will become an attractive investment destination.

“Lack of capex has been the biggest drag on India’s growth as most FDI (foreign direct investment) is concentrated in buying existing businesses rather than setting up shop. The changes brought about in the form of GST (goods and services tax), Real Estate (Regulation and Development) Act, the bankruptcy code, labour and farm law changes along with production-linked incentives will address the big address on economy, which is capex,” Desai said.

He emphasized that manufacturing companies are looking at diversifying its 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 infrastructure – 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 the banking channels would go up from the third quarter of this fiscal year. “Banks are assessing the impact of the GDP slowdown on their clients. The confidence level of banks will improve by the second quarter and lending should start by third quarter. Lending is the dharma and karma of bankers and it will happen,” he said.