New Delhi: The Indian government is likely to wait for a vaccine against Covid-19 before announcing the next set of fiscal measures to revive demand, said Chief Economic Advisor in the finance ministry Krishnamurthy Subramanian.
Speaking at a virtual seminar organised by the Federation of Indian Chambers of Commerce and Industry Wednesday, Subramanian said the government is willing to do whatever is necessary to push consumption, but pointed out that the “question is not about if, but about when”.
“Once we have the vaccine, then the uncertainty that people have will go down significantly. If the vaccine comes through in the next few months, then the time will be right for a fiscal push as it will generate demand for even discretionary spending. The timing is important so that the bang for the buck is maximised,” he said.
There has been some positive news this week with the Oxford vaccine trials showing dual immune action against the novel coronavirus. However, the vaccine has to undergo further trials.
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People preferring to save rather than spend
Subramanian said that there are signs of demand being adversely impacted due to the uncertainty around the pandemic with people preferring to save rather than spend.
Backing his argument, Subramanian said that data from Jan Dhan accounts showed that people are holding on to their money and not withdrawing to spend.
These accounts typically showed a low propensity to save before the pandemic. However, the cash balances in these accounts has increased by Rs 20,000 crore, Subramanian said without elaborating on what time period he was talking about.
Subramanian’s comments come at a time when many industrialists and economists have urged the government to announce measures to boost demand now rather than wait, pointing out that a failure to do so could result in many small businesses shutting down operations due to lack of demand for their goods.
The government, meanwhile, is of the view that due to the prevailing uncertainty, it will be better to preserve its fiscal firepower to a time when people are ready to spend on more than just essential items.
The government and the Reserve Bank of India have announced economic measures amounting to more than Rs 21 lakh crore over the last few months, but most of these measures are liquidity support measures routed as bank loans to companies. The fiscal impact of these measures is expected to be only around Rs 2.5 lakh crore.
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