The COVID-19 pandemic has inflicted heavy economic costs across the world with countries reeling under recession. Certain structural reforms such as the national monetization pipeline, national infrastructure pipeline, production linked incentive schemes, PM Garib Kalyan Package, Atmnirbhar Bharat among others have helped mitigate the effects. To evaluate the way forward for a long term economic expansion, we have gathered for a talk under the series The State of the Economy – #EconDialogue on the topic India: Growth Prospects after COVID. This deliberation is being organized by the IMPRI Center for the Study of Finance and Economics, IMPRI Impact and Policy Research Institute, New Delhi.
We had an esteemed panel consisting of Dr Renu Kohli, Independent Economist, New Delhi, Former Staff Member International Monetary Fund and Reserve Bank of India as the speaker; Dr J Denis Rajakumar, Director, Economic and Political Weekly Research Foundation, Mumbai, Dr Radhika Pandey, Senior Fellow, National Institute of Public Finance and Policy(NIPFP), New Delhi and T K Arun, Consulting Editor, The Economic Times, New Delhi as the discussants; and Prof N R Bhanumurthy, Vice-Chancellor, Dr B.R. Ambedkar School of Economics University, Bengaluru as the chair.
Prof Bhanumurthy begins the discussion by appreciating Dr Renu Kohi’s work in her field and then he provides a brief introduction of each of the panel members.
Dr Renu Kohli then begins explaining the issue with the help of a presentation. She emphasizes the understanding of history in order to devise better strategies for the future. She explains her position through the following pointers:
- Optimism about post-COVID recovery and medium-term prospects
- Realistic? Or should we be cautious?
- COVID forecast errors large, damages high, distortions abound
- Pre-COVID economic health raised concerns too: FY2020 output collapse – why does that matter? Structural drivers, potential growth risks, return to high growth trajectory post-COVID?
- What happened? Short recapitulation: Optimism, mid-year plunge in expectations, wide gap in initial Gross Domestic Product (GDP) casts and actual outcomes, e.g., Reserve Bank of India (RBI) – 7.4%, February‘19 to 5% December‘19, actual outcome 4.1%.
- No identifiable shock
She then goes on to talk about the reasons for the growth collapse in 2019-20. Here she talks about the RBI’s understanding of this growing deficit and then also presents us with some of the speculated reasons for such a growth collapse some of which are high real estates rates, debt fuelled-growth in the past, peaking demand, sentiments and animal spirits, twin balance sheet stresses, etc. She then further talks about the consumption slowdown which precedes the COVID shock and therefore is also a major reason for poor growth rates. She explains her position through some facts and figures. She then talks about the consumption revival and the uncertainties associated with it through the following facts:
- Why did consumer spending take so long to slow down? Role of future income expectations; borrowings propped and extended; unsustainable, and headed for a crash; confronting weak future income prospects, plunge in sentiments mid-2019, triggering cutbacks in the current composition
- Terms of trade environment – reversal? Impetus from global oil commodity prices’ collapse, including fuel and foods, – significant income boost from 2014-15, coincided with low Consumer Price Index (CPI) inflation. But that phase passed in 2016/17, inflation and esp core inflation crept back; indirect tax hikes, viz, Goods and Service Tax (GST), excise/custom duties, worsened matters – reduced purchasing power, dent in consumer confidence (economic policies’ role?)
- So the critical and relevant question is if the consumer is poised to revive.
She then talks about the evidence which supports her argument and then elaborates on several of these pieces of evidence. Finally, she enlightens us about the post-COVID prospects for the economy. Some of the points on which she elucidates are mentioned below:
- Optimism: supply-side reforms of pre covid years, i.e, Insolvency and Bank Code (IBC), GST have begun to yield results, more structural reforms have been announced or implemented during COVID
- Should boost consumer sentiment? RBI’s consumer expectation surveys – yet to reflect any great enthusiasm, rising but from their COVID lows and lukewarm pace
- Delays, rollback in reforms – agriculture, labour laws/codes, IBC, bad bank, etc.
She then poses a question that asks if external demand can be a source of growth?. She tries to analyze the possible solutions by elaborating on several points such as exports, uncertainties, global inflation, etc and finally ends her presentation with this.
Prof Bhanumurthy then invites Mr Arun to present his views and opinions on the issue. Mr Arjun asserts that he usually agrees with Dr Renu’s point of view and in fact even today he was quite impressed with her presentation but he has a different opinion on some of the issues addressed by Dr Renu. He then goes on to elaborate on his perspective on the concerned issues. He then talks about the reluctant nature of Indian banks to lend in recent times and elucidates further.
Prof Bhanumurthy after listening to Mr Arun’s arguments state him to be a pessimist internally and an optimist externally. He then invites Dr Denis to make his observations. He appreciates Dr Renu’s analysis of the pre-COVID times in an economic context and also lauds Mr Arun’s efforts to present us with several effective policy options. He then backs Dr Renu’s perspective through several facts and figures. Also, he acknowledges the ailing condition of the Indian economy is primarily due to structural causes. He then revisits some of Dr Renu’s propositions and elucidates on the issues through statistical figures and poses some questions which are crucial and therefore need to be resolved.
Prof Bhanumurthy then invites Dr Radhika to put her views before us. With the help of a presentation, she briefly touches upon several issues of importance. She begins by giving us an insight into the Indian economy through the COVID-19 period. Some of the points she touches upon are mentioned below:
- Early last year, the Indian economy was gradually recovering until the severe second wave hit the brakes
- As the pace of vaccination picked up and restrictions began to be lifted, economic recovery gradually gained momentum
- While the second wave was severe, its economic impact was limited to the April-June quarter
- While the real GDP in the quarter was 9.2 per cent lower than its pre-COVID levels, it attained pre-COVID levels in the September quarter, etc.
She then talks about how the policies adopted during the unprecedented period of COVID-19 were not efficient and therefore our country was in need of better policies to manage the uncertainties. Further elucidating, she talks about how the last two years saw a coordinated easing of monetary and fiscal policies: massive stimulus and unprecedented expansion of CBs balance sheets. She also highlights the resurgence of inflation amid rising in demand and supply side since the second of 2012. She also talks about the monetary policy normalization and the limited space for fiscal and monetary expansion. She then explores the factors influencing the growth prospects through the following points:
- Resource of inflationary pressures: Input cost pressures
- Boosting consumer confidence
- Targeted Spending: Micro, Small and Medium Enterprises (MSMEs), Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)
- Infrastructure push: National Infrastructure Pipeline (NIP), National Bank for Financing Infrastructure and Development Bill (NaBFID)
- Financial sector reforms
Dr Arjun then puts before us a question raised by one of the audience’s to which Dr Renu responds in a detailed manner. The session finally concludes with final remarks and observations of Prof Bhanumurthy on the topic.
Acknowledgement: Ayush, research intern at IMPRI.