Interview | Right time to bet on long-term growth through infra investment: Sanjeev Sanyal


Hours after Finance Minister Nirmala Sitharaman’s Budget speech, Principal Economic Advisor Sanjeev Sanyal spoke exclusively to Moneycontrol. Sanyal said the aim of the Budget was to bet on long-term growth through public spending.

“When you save your spending for infrastructure, it’s not one year, you’re betting on a period of time,” Sanyal said.

Sanyal justified the Finance Minister’s decision to not provide tax breaks for the salaried classes. “If anything, we have invested into simplifying a lot of tax procedures, particularly for the old, making sure that concerns about investigations are allayed,” he said.

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The focus was on growth and creating jobs when there are concerns about job security, he said.


Q. If you can explain to us, what is the direction of this budget and what is the main theme that this budget is focusing on?
We have gone for growth, that should be pretty obvious. And I think the context in which it needs to be seen is obviously the impact of the pandemic. There was a lot of criticism about India, India’s approach to it, which was very different from what many of the experts or what other countries were doing.

We did not go for a big, upfront big bang, stimulus. Instead, we first went for the world’s tightest lockdown. We took a minus 24 percent GDP (Gross Domestic Product) growth rate on the chin. And even after that, once the economy was opened up, we did step by step ramping up.

By the last quarter of the calendar year, which is the October to December quarter, there were very significant increases in capital expenditure. So, October was up 129 percent year-on-year, and 249 percent year-on-year in November and 62 percent in December. January numbers will be similarly quite large. And then we are again going for a fairly heavy infrastructure rollout over the next couple of years.

When you save your spending for infrastructure, it’s not one year, you’re betting on a period of time. And our argument is that this is a good time to do it. At least for the next year, our nominal GDP growth rate will be somewhere in the 15 percent plus range, according to our (Economic Survey 2020-21) calculations. The budget, though, has been conservative at 14 percent.

Also Read: FM Nirmala Sitharaman opens government purse-strings to revive growth

We will then be able to sustain it even from a fiscal consolidation perspective because nominal interest rates are so much lower than the nominal GDP growth rate.

Q. One can say that the Budget is quite one-directional in its intent, which is to spur growth and that’s not necessarily a bad thing?
Absolutely.  So initially, when the lockdown was on, the targeting was on providing basic essential services, and cushions and a safety net to the vulnerable sections of society. That’s why we rolled out the world’s largest food program, we had all those guarantee schemes and other things for MSMEs and so on.

As we come out of that we have also now we are targeting infrastructure. because this is the thing that provides the biggest multiplier for demand and jobs. And it also leaves behind assets. Even when the fiscal deficit declines next year, there’ll still be borrowing to do.

So we are using this to create assets, which we will leave for future generations. So this is an important part of it, both the timing part of it and the targeting part of it.

Q. So all recommendations of further expansion of job schemes would be kept aside and focus then would be only on using infrastructure ramp-up to generate jobs?
Some wanted a big upfront, broad sort of spending while we were under lockdown. Others, till very recently recommended a tax-the-rich kind of an approach. We avoided all of that and we have gone for a very particular approach.

We have targeted infrastructure spending and on health. It’s not just physical infrastructure but also things like health education, we are creating a National Research Foundation.

Meanwhile, we are also rejigging the banking system and priming it for expansion in multiple ways, including creating our development finance institution.

Q. How do you think this fiscal expansionism will play out with the rating agencies?
Obviously, it’s their call, I can’t comment. We did write in the economic survey, however, that given our economic fundamentals, we are rated way below what is justified by our fundamentals. I think we would rather grow and go for growth than worry about this particular issue, given the context that the fiscal standing of virtually every other country who is rated above us is now going to be significantly worse than ours.Q. The budget talks about a concept similar to that of a bad bank. If you could explain to us how would the government go about with it and what would be the modalities in creating such a structure?
It’s not a bad bank of the kind that BIFR (Board for Industrial and Financial Reconstruction) was. It will be run basically by the banks, for the banks kind of a thing.

But yes, the government will provide support in whatever way it can. But the details will really come through from the banking secretary; so just bear with us.

Q. There is nothing in terms of more tax breaks or changing of income tax slabs?The expectation was in fact that taxes would be going up and then nothing went up. If anything, we have invested in simplifying a lot of tax procedures, particularly for the old, making sure that concerns about investigations are allayed.So I think in a time when there were a lot of concerns about job security, we have gone for growth, trying to re-employ people. I think that was the more sensible thing to do.