Macro Minutes Podcast | The economic impact of second Covid #39;surge#39; will not be as large as the first one: Chief Economic Advisor


Krishnamurthy Subramanian, CEA, India

The economic forecasts for 2021-22 in the latest budget and economic survey, and the assumptions built into them, will not be affected by a surge in Covid-19 cases, and the economic impact of the second wave is likely to be much lesser than the first, Chief Economic Advisor Krishnamurthy Subramanian told Moneycontrol.

Speaking on the latest episode of “Moneycontrol Macro Minutes” podcast, Subramanian said that the government had been deliberately conservative in its forecasts for the current financial year.

While not ruling out an economic intervention like last year should the need arise, Subramanian said any further measures announced would likely be on the fiscal support and capital expenditure side.

“Because we knew very well that the pandemic was not over, we did not make projections in the economic survey and the budget that were too aggressive. We were quite conservative in our projections,” Subramanian said.

“We have done some simulations as well. What we find is that even in some of the worst case scenarios, the impact is not going to be that larger. From a health perspective, we have to continue to follow all protocols,” he added.

The 2020-21 Economic Survey has forecast a real GDP growth of 11 per cent for 2021-22. The Union Budget estimates a nominal GDP growth of 14.4 per cent, a fiscal deficit target of 6.8 per cent of GDP, a net tax revenue target of Rs 15.45 lakh crore, and a privatization target of Rs 1.75 lakh crore.

Speaking on a range of issues, Subramanian echoed Prime Minister Narendra Modi’s statement that there would be no national lockdown.

Last year, as the country went into a nationwide lockdown, Finance Minister Nirmala Sitharaman announced relief measures for India’s poorest citizens in the form of free foodgrain and cash transfers under the ‘PM Garib Kalyan Yojana’.

Then at various times in the year, she announced a number of measures under the ‘Aatmanirbhar Bharat’ set of initiatives. Though the government claimed that the size of these relief packages totalled Rs 29.87 lakh crore, most of the measures were on the credit, welfare and supply side. The total fiscal outlay for all these measures was not more than Rs 4 lakh crore.

It was only in the budget that Sitharaman provided a substantial fiscal stimulus, through increase in capital expenditure and public spending in infrastructure.

“At this point in time, I’m not sure that there is a need for another sort of revenue expenditure-based stimulus. The government has been very clear in laying out a capital expenditure driven agenda, and there’s enormous clarity both at the big picture and at the granular level for what should be done. I think we should continue focusing on that,” Subramanian said.

Amidst criticism from opposition leaders and concerns regarding shortage of Covid-19 vaccine doses in India, Subramanian defended the centre’s decision to take a lead on exporting vaccines to other nations. He said that the diplomatic loss would have been much greater than the goodwill earned now, had India, as the world’s largest vaccine producer, decided to keep all the production for its own citizens.

“India has now vaccinated the largest number of people. And even if you look at the proportions of vaccines that have been exported compared to the vaccines that have been employed in in the country, the proportion of what has been exported must be actually less than 10 per cent of what has been produced here,” the CEA said.

Subramanian also said that the United States’ proposal, calling on the G-20 countries to reach an agreement on a ‘global minimum corporate tax rate’ will have to be examined carefully.

“The ability to enforce something like this, I think it’s, there are a lot of T’s that will have to be crossed and I’s that will have to be dotted, before such an idea becomes a reality. Because, unlike, for instance, the states in a country coming together, this is about countries of the globe coming together to tax, so I think a lot of details that need to be fleshed out before this can be responded to,” he said.