‘This will determine if intervention is required to support the economy’
Data over the next six weeks could determine whether further intervention is required to support the economy, said Sanjeev Sanyal, Principal Economic Advisor, on Thursday.
According to Sanyal, global developments will also impact inflation and demand. He was speaking at an interactive session organised by the MCCI.
“An expansionary tilt was there in the Budget and some of it were being implemented from February onwards (till the second wave hit). Our response is now (as reopening happens again) contingent on how things pan out. Surveillance of high-frequency data over the next six weeks and global developments that impact inflation and demand, will be looked at as we decide whether to press the accelerator or not,” he said.
The Principal Economic Advisor predicted three possible scenarios, which include a “bump up in the economy” as restrictions are removed. But it has to be seen if such a sharp rise is sustainable as pent-up demand subsides.
The second could see the “economy come back roaring”, riding on the mildly affected sectors such as construction, infrastructure, exports and recoveries in others. But then, there is worry of inflation associated with it.
In the third, there could be differential recoveries, where some sectors do well, and some such as restaurants or hotels take a huge hit due to continued closure. Then, a general support mechanism will not work. Rather, it needs a “much more targeted response”.
“So, I would say it is much more sensible to wait and watch and then respond quickly to what the situation demands. However, in all cases, you need to hedge. And we have done so by continuing on with the universal food support programme (free rations), MSME relief schemes. At the same time, supply-side interventions become necessary as you need to unleash the animal spirits of the private sector,” said Sanyal.
Liberalising IT-BPO rules, opening up geospatial and cartography sectors, and usage of drones are some segments that may bring in more investments from the private sector; PLI schemes were also being pushed to align Indian manufacturing with global supply chains.
According to him, one has to accept the uncertainty and deal accordingly. “This is not a planning problem. There is not much policy-making that can be done either. So, we need to continue with the vaccination programs, reasonable high levels of testing, and have better surveillance,” Sanyal added.