New Delhi: The GDP growth could slip to zero or even negative in the first quarter due to the impact of the countrywide lockdown imposed to contain the spread of the deadly Covid-19, NITI Aayog vice-chairman Rajiv Kumar has said.
While there is a chance that this may not happen since essential services are functioning, the virtual shutdown of all other sectors of the economy could result in a zero or negative GDP growth, Kumar said in an interview to ThePrint.
“See all the essential services are still working, so a small part of the economy is moving, that means it should not slip to zero,” Kumar said. “But it could slip to zero or even negative, who knows? It depends on how long the economic curfew lasts… What is clear is that the economy would be hit very hard during this quarter.”
Beyond June it would not be possible to provide any forecasts, Kumar said. “There is too much uncertainty — it depends on the length, severity and spread of the pandemic.”
Kumar, however, ruled out the possibility of a recession as after June, he does expect some sectors like hospitality, transport, entertainment and FMCG to start functioning.
“We expect the service sectors, which constitute 55 percent of the economy, to pick up immediately after; so there could be a revival of sorts.”
Asked if there is a consensus in the government that the economy and economic revival is second priority at the moment, Kumar said, “Saving lives has to be first priority, yes, and we should stick to that consensus.”
Explaining the rationale behind not announcing a big economic stimulus for the lockdown period, Kumar said, “We are not as opulent as some of the Western economies… We wish we were, but we are not.”
“We will have to calibrate our fiscal response so that we do not go overboard,” he added. “But this is not to say that more steps are not in the pipeline.
Earlier this week, Finance Minister Nirmala Sitharaman had announced a Rs 1.7 lakh crore relief package for the poor and migrant workers who have been hit the hardest by the lockdown.
RBI Governor Shaktikanta Das Friday announced a deferment of all loan repayments, effectively allowing borrowers to not pay any equated monthly instalments or EMIs for any loans until 30 June.
Kumar said that we should look at the government response both as a fiscal and monetary package. “Together, it is a significant package.”
“It has not been quantified but the debt moratorium for three months announced by the RBI would cost the banks some amount of money,” Kumar said. “The fact that the governor said that it would lead to Rs 3.75 lakh crore extra liquidity into the system – that has its own financial implications and cost that the government will have to bear.”
“The government will have to sell its bonds, and the government debt will go up in that sense,” he added.
‘Can’t ask how relief schemes will be funded’
Kumar, however, said it would not be correct to ask how the schemes under the relief package would be funded by the government.
“One cannot compare the government to the household… Theoretically speaking, the government has the recourse to unlimited money since it can print it,” he said. “For example, Trump has announced a $2 trillion package, now where is that money going to come from?”
But in his personal capacity, and not as vice-chairman of the government think-tank, Kumar said that the times are calamitous enough for the government to ask individuals to donate to the government coffers.
“In India, the private economy is always a surplus economy, so if the government feels the need, it could ask individuals to come forward and donate,” Kumar said. Emphasising that the view is a personal, and not official one, Kumar further said that it is something that late prime minister Lal Bahadur Shastri had done during the 1965 war.
“There is 25,000 tonnes of gold with people, trusts, temples in India… In the 60s, I remember our mothers and grandmothers coming forward to give it to the government,” he said. “I believe we are in a similar situation today, and that is the kind of response we need from people.”