CW’s webinar discussed the current economic scenario, stimulus package, measures to revive the economy, and more...

The country has been reeling economically from the COVID-19 driven lockdown. Prime Minister Narendra Modi recently announced a Rs.20 trillion stimulus for the economy. Will PM Modi’s relief package rescue India? Will the economic package revive Indian businesses? CW and Infrastructure Today organised a free webinar with a panel of experts to deliberate upon this topic.

The webinar began with presenter Pratap Padode, Editor-in-Chief, CW and Infrastructure Today, welcoming the guest panellists to the session. The panellists included industry stalwarts Vinayak Chatterjee, Chairman, Feedback Infra; Harshavardhan Neotia, Chairman, Ambuja Neotia Group; Madan Sabnavis, Chief Economist, CARE Ratings; and Pradeep Singh, Former Advisor-Infrastructure, Government of Jammu & Kashmir.

Economic scenario

On an opening note, highlighted Padode, “The economy was already failing earlier this year and then the finance minister proposed the National Infrastructure Pipeline (NIP) as a major infrastructure plan of `102 trillion. But as per the Economic Survey, the time just before this shows that our sectors were failing, our GDP was plunging downwards. And because of COVID, we now have lower imports and exports. The PMI index has really crashed because there was no industrial activity after the middle of March.”

Negative growth rate for India?

Speaking of construction, Sabnavis noted that for 2019-20, a positive growth number was projected in the GVA, which will definitely move into the negative territory. “The entire real-estate and construction sector has been deeply impacted, primarily on account of the large-scale labour migration.”

Looking at India’s GDP for 2020-21 on account of the pandemic and things probably not easing out before the second half of the year, Sabnavis expects a best positive growth rate of 1 per cent. “In fact, negative GDP growth looks likely. If at all we do get a positive sense in our GDP, it will be more because of government spending.”

With regard to the economic package announced, Sabnavis believes it did not quite provide the kind of stimulus expected. “When we earlier predicted this growth rate of 1 per cent, we expected some additional spending coming from the government. But the announcement has been more on the supply side rather than the demand side. So the negative growth rate in GDP looks very likely for 2020-21.”

Decoding the stimulus package

Commenting further on the current situation, Chatterjee highlighted, “The classical stimulus package is broadly that 70 per cent is earmarked for demand creation, about 20 per cent for liquidity infusion, and about 10 per cent is reform-oriented – for all the transition costs of reform. But what we have actually seen is that the pyramid is inverted. I would even be optimistic to say that we have seen 10 per cent of demand creation, 70 per cent reform and maybe 20 per cent liquidity. So the expectation of the stimulus pyramid 70-20-10 has been inverted. First, the current set of announcements do very little for demand stimulation, which is worrying because without that, where will the multiplier effects come from, where will the jobs come from, where will the efforts come from for picking up the economy?”

Speaking of the NIP, he says it envisages not `20 trillion from the starting year, but about Rs.15-16 trillion from year one, where we are today. It seems a long haul now with the private sector completely out of making any investments, the states being fiscally strapped, and the burden coming on the Centre to fund the infrastructure aspirations of the country. “ Rs.15 ltrillion by the Centre is clearly out of the question! Even with the best of efforts this year, with the kind of fiscal strain we are seeing, we will be blessed even if we are able to do Rs.7-8 trillion!”

Second, much of the discourse is happening within the box of the consolidated fund of India – the Union Budget – in Chatterjee’s view. “In cathartic moments like this, which require out-of-the-box thinking, we need a twin engine running. You need to have the consolidated funds of India and you need to start a new fund, which I call the National Renewal Fund, to complement the Budget’s efforts in kickstarting the economy. This new fund should be a historic 50-year fund: 60 per cent based on government domestic borrowings and 40 per cent from chief developmental long-term finance.” A clear calculation leads him to the conclusion that the size of the fiscal stimulus package should have been about Rs.30 trillion.

Have the FM’s announcements been able to address demand stimulation?

Neotia agrees that most of the industry thinks enough hasn’t been done for demand stimulation.

He believes it is not possible that the government is not aware of the situation as inputs have been provided to it by various industry bodies. “In spite of that, they have chosen not to do it. So that leaves me with a question: What is it that we don’t know? It can’t be that the government has just missed it; they would certainly be aware of what economists, thinkers and the business community are talking about.”

He added, “If I have to make a guess, it could be two things. Perhaps they think they ought to do something closer to the time when the markets open up, a period that is more targeted; or they may have come to some internal calculation that the kind of stimulus required to really do this is just not affordable, in which case they are reconciling to the idea of letting everyone find creative ways to manage the situation. What seemed to be an obvious solution that ought to have been provided to the industry, if it didn’t come after so many months of deliberation, clearly there is a reason, and it is important for all of us to search for the reason.”

Impact of the measures

According to Singh, “People are doing the arithmetic and concluding unhappily that only Rs.3.5 or 4 trillion of the Rs.20 trillion is the actual so-called cost to government; the rest of it is actually our money. Government money is our money too, the taxpayers’ money, which has been budgeted for public purposes. When the government decides to give it to purpose X, it has to ultimately take it away from purpose Y. In fact, all such steps that do not involve an outgo of government funds is not bad news, it is actually good news because this safeguards the taxpayers’ money for other purposes.”

That said, there is no doubt that when the crisis is as huge as the one we are facing now, government spending has to step in. The government has to provide relief to those affected the most as well as create demand, added Singh.

It is also true that the amount provided is only 20 per cent of the much-vaunted Rs.20 trillion.

“If the government were to be irresponsible, they can easily borrow large amounts from the market or, even worse, print money in large quantities and distribute relief.

But it will not be long before this comes back and hits the same very growth aspirations in the form of high interest rates.” The most effective, quickest and cheapest way for priming the pump, according to Singh is simple: “As the economy opens up, so will demand.”

What’s the solution?

Every problem requires a matching solution. “It is not merely about being apologetic and being unable to provide the right sledgehammer solution, which the intensity of this problem deserves – that 400 million Indians are being pushed into destitution and joblessness has crossed 25 per cent in this country,” highlighted Chatterjee. “The size of the misery is so humongous that to say that the finance minister must live by the conventional book and we must be conservative and do what is possible within the rectitude of the existing fiscal budget of India, does not match the magnitude of the problem. If you agree to the sheer force of what is going to hit us and remain with us for the next three to four years, if nothing is done, the scale of what is required does not match with the effort.”

Here, Chatterjee reiterates the idea of a 50-year national renewal fund. “Even credit rating agencies have said that it is clear that 60 per cent can come from borrowing money. If the Japanese can give 1 trillion at 0.5 per cent for 60 years for the bullet train project, surely institutions of that size and stature can contribute to the 10 per cent of a fund, which should have a corpus of clearly about Rs.22-23 trillion. It should be a separate accounting entity outside the consolidated fund of India and that amount of the fund should be used for demand stimulation so that jobs and livelihoods come back.”

Evidently, fiscal benefits need to be infused. Meanwhile, the proposals discussed by the panellists will be sent across by CW to the government – we look forward to more proactivity!

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