Govt should spend, increase healthcare allocation: CEA to industry leaders

Chief Economic Advisor Krishnamurthy Subramanian on Saturday said the government should step up and spend as the economy recovered after one of the worst contractions due to the Covid-19 pandemic. The Economic Survey, tabled in Parliament on Friday, recommended countercyclical fiscal policy, he said, adding: "Survey is clear that fiscal support should continue till we reach pre-Covid-19 levels."

The CEA also said that spends during recessionary times have a much higher multiplier effect on the economy. He was speaking with industry leaders in a televised Economic Survey Townhall organised by CNBC-TV18.

The survey, tabled ahead of the Union Budget, expects the Indian economy to grow by 11 per cent in FY22, after a 7.7 per cent contraction in the current financial year. The Survey maintains that the economy is witnessing a V-Shaped recovery, according to high-frequency indicators from power, rail freight and other critical sectors.

R Mukundan, CEO Tata Chemicals speaking with the CEA said that there is a need of government action in 'mission mode' aimed at improving health and education sectors. 

Speaking on his call for increasing spending on the healthcare sector, the CEA said it was paramount that the healthcare spending be increased from 1 per cent to 2.5 per cent in view of the coronavirus pandemic.

Speaking on privatisation, Subramanian said disinvestment would happen this year and selling Air India would be a seminal moment that would clearly signal the government's intent. 

Kiran Mazumdar Shaw, MD Biocon said that diplomacy around vaccine manufacturing, led by the private sector, had put India on a strong footing.

Niranjan Hiranandani of Hiranandani Group suggested that there is a need for much more aggressive stance with regard to spending on infrastructure. Meanwhile, Rashesh Shah, CEO of Edelweiss Group maintained that a bad bank should be financed by private sector, not via government funds.

The Survey had noted that for emerging economies like India, an increase in public expenditure in areas that boost private sector's propensities to save and invest, may enable private investment rather than crowding it out.

In an economy with unemployed resources, an increase in government spending would raise the aggregate demand in the economy, which might induce the private sector to increase their investment in new machinery to cater to the increased demand, and hence put the unused resources to productive uses, according to the document prepared by Subramanian.

"If the public expenditure is directed to sectors where the fiscal multipliers are large – for instance for building infrastructure – such spending might significantly crowd in private investment as well," it said.