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V-shaped recovery is well on track: Chief Economic Adviser KV Subramanian


Chief Economic Adviser
KV Subramanian is confident the economy is strongly bouncing back. During an interview with
Shantanu Nandan Sharma at his North Block office, Subramanian adds the vaccination programme will only help sharpen the V-shaped recovery. Edited excerpts:

What according to you are the biggest hopes and risks in 2021-22?
The first hope comes from the growth recovery. The Economic Survey has estimated GDP (gross domestic product) growth to be 11% for the year. After the economy declined by 23.9% in Q1 and 7.5% in Q2, we saw a rise of 0.4% in Q3 of the current fiscal year. But if you take into account GVA (gross value added) of Q3, you will notice the growth is even healthier. In this year, have increased substantially like PM Garib Kalyan Yojana. GVA plus taxes minus subsidies, subsidies means the GDP growth understating the real performance of the economy.

Are you confident of a V-shaped recovery?

The V-shaped recovery that we had predicted after the Q1 corporate numbers came out is well on track. The vaccination drive will only help achieve it. We will have to be cautiously optimistic though, as the pandemic is not yet over. But many states are still financially challenged and are unable to spend much.

Are you worried on that front?
FRBM (Fiscal Responsibility and Budget Management Act) relaxations are provided to the states. States can now borrow more and fund their infrastructure projects. Also, the recent budgets of some states have demonstrated they are recovering fast. Tamil Nadu, for example, has recorded a positive growth. Also, for 2021-22, the budget has estimated a spend of 2.5% of GDP in infrastructure. That will be fully funded by the Centre.

Will the aggressive asset monetisation plan have any impact on the economy?
One needs to look at asset monetisation from two angles. First, asset monetisation enables use of assets that are not being employed optimally. When those assets are sold and go to the private hands, those will be utilised much better. That ultimately improves productivity of the economy. The second aspect is that it will bring in money and thereby improve our fiscal condition. States should also draw up a list of assets that can be monetised.

Will healthier GST (goods and services tax) numbers that we have seen since September sustain in the coming year?
Indirect tax often narrates the story of the economy better. Unlike direct tax, for which you need to wait till the end of the year, indirect tax is based on consumption and thus you can see the outcome immediately. GST collection is at a historic high. The numbers in the recent months are better than those in the pre-Covid days. A good part of the present GST growth comes from our economic recovery. Another reason for the growth is better compliances.

How will the job situation be in 2021-22?
We have to look at how the macro-cycle proceeds. It starts with investments, which in turn enhance productivity and consumption. That creates jobs. And that further leads to more investment. But this happens with lags. Current investment sentiments, as shown by various reports including RBI’s business expectation survey, are very high. That will have an impact with some lag on consumption, jobs, etc.

When will labour code rules be framed?
Many companies, especially those in the manufacturing sector, are ready with some plans but those will fructify only after the rules are framed. As the ministry of labour has indicated, it could be announced sometime in April.

Won’t the rising Covid cases be a dampener for FY22?
Till vaccination does not happen to a large threshold, it will continue to be a risk factor that we need to be aware of. We need to take precautions so that the recovery that we have witnessed so far must not get affected.

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