Right time for additional fiscal stimulus would be after vaccine's availability: CEA
The Economic Times , Jul 22, 2020
Additional demand side fiscal stimulus from the government was not a question of ‘if’ but ‘when’, said KV Subramanian, chief economic advisor of India (CEA), adding that the right time would be after a vaccine was available.
“In other words, the question is not about if, the question is about when. I think the right point would be, if some of these, what we are seeing, the vaccines, really come through in the next few months lets say, and thereby the uncertainty goes down, I think the time would be very right for there to be then a fiscal (stimulus) for discretionary items,” Subramanian said, answering a question on additional fiscal stimulus.
The CEA was speaking during a webinar hosted by the Federation of Indian Chambers of Commerce & Industry (FICCI) on Wednesday.
According to Subramanian, the uncertainty prevalent in the economy substantially impacted demand, especially for discretionary items. “Till we have the uncertainty, even if people have money in their pockets, they may decide to actually keep it in their banks as saving accounts,” he said, citing the increase in Jan Dhan account balances to Rs 20,000 crore.
The slowdown in the economy that was prevalent before the pandemic hit the economy was largely due to persistent problems in the banking sector like the non-performing asset crisis and risk aversion, said Subramanian.
“We basically have been caught in this chakravayu now, which is induced by the banking sector. That lowering of investment has lowered growth, that has lowered consumption by lowering disposable income and thereby, because of anticipation of lower consumption, investment is down and so on,” he said.
Subramanian pushed for banks, both private and public, to adopt the latest data and technology practices like artificial intelligence and machine learning in order to scale up lending and to improve the quality of corporate lending.
Addressing the issue of wilful defaulters, he said, “Banks can look to utilise a lot of the data sources that are coming in, transaction level data and others, to infer not only the ability to repay but the willingness to repay as well. One key thing that distinguishes between willful defaulters and distressed defaulters, it is the willingness to repay.”
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