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Expecting govt to intervene with taxpayer money for every sunset could bring moral hazards: CEA Subramanian

August 22
23:29 2019

Amid the slowdown in several sectors caused by the slackening of consumer demand and weak earnings, one important question that arises is: is it a recession period?

According to Subhash Chandra Garg, former economic affairs secretary and present power secretary, it is not. “This year’s growth globally would be higher than the growth of six-seven years taken together as an average,” he said while he discussed the outlook on recession with other experts.

Among the other experts were chief economic adviser (CEA) Krishnamurthy Subramanian, Omkar Goswami, chairman, CERG and Puneet Chhatwal, MD and CEO, Indian Hotels.

“Today the global economy still is growing at about 2.9 percent to 3 percent… last two years we grew at about 3.5-3.6 percent globally. In that context, this is a little bit of a slowdown, but if you take four years before that, the average growth was only 2.4-2.5 percent. So this year’s growth globally would be higher than the growth of six-seven years taken together as an average… globally, to my mind, there is no recession,” said Garg.

Goswami too is of the same view.

“It is not a recession. We use this term so loosely in India that I have not seen anywhere in the world. Recession, everywhere, by and large, is two successive quarters of negative growth. It is a slowdown in growth. The real question to ask is – is this a cyclical slowdown or is it something more structural? I don’t think we have a clear answer to this. There are some very worrying structural-like signs in the economy,” said Goswami.

“I think we are possibly at the beginning of a structural situation. It is not a pure business cycle and it may take longer to come out than we think. As far as the stimulus is concerned, we can wish for all the fiscal stimulus that we have but the fisc is broke,” he added.

While CEA Subramanian said, “We have to be careful. Starting around 1991 till now, we are a market economy. In a market economy, there are sectors that go through a sunrise phase and then through a sunset phase. If we expect the government to use taxpayer money to intervene every time when there are some sunset then you introduce possible moral hazard from too big to fail and as well as the possibility of a situation where profits are private and losses are socialised, which is completely anathema to the way a market economy works.”

“I think there is a permanent damage to the pricing power in all sectors of the globe. We are not having the same ability to charge as we used to have earlier. Whether it is cyclical or structural – I don’t think I can cheer so much but definitely it is sentimental. It is not that there is dearth of capital in the world, there is more liquidity or private equity in the market than maybe ever before but there is reluctance to invest,” said Chhatwal.

“A sentiment is very important, a belief is very important and as far as India is concerned, I remain very optimistic that eventually everything will be fine.”

Source: CNBC-TV 18Subscribe to Moneycontrol Pro and gain access to curated markets data, trading recommendations, equity analysis, investment ideas, insights from market gurus and much more. Get Moneycontrol PRO for 1 year at price of 3 months at 289. Use code FREEDOM.

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