Brainstorming The Indian Economy: Four Experts, Five Suggestions Each
The Indian economy is hurtling towards a recession, the first in over four decades. The Covid-19 outbreak is likely to a force a real GDP contraction of between 5-10%, depending on whose estimates you choose to follow. With this contraction will come a host of unsavoury consequences—weaker revenue and higher expenditure for the government, lower earnings and spending for consumers and a surge in defaults for financial institutions.
Finding a mix to these myriad problems isn’t going to easy. But there are ideas out there for things that should be done as a first step in repairing and resuscitating the Indian economy.
Speaking at a webinar organised by the SP Jain Institute of Management and Research, top economists and economy watchers gave their ‘to-do’ list for the economy. When asked what are the five things they would do, this is what Pronab Sen, Rathin Roy, V Anantha Nageswaran and Ananth Narayan had to say.
Pronab Sen, India Growth Centre
Sen, India’s former chief statistician, wrote a five-part series on Ideas For India detailing the impact of Covid-19 on India. In that he forecast a double digit contraction in India’s real GDP this year. Sen said while the government’s initial response was good, much more needs to be done.
His firs suggestion was to reverse a recent government order which put a freeze on spending on projects. As a next step, Sen said the government should look at all the list of approved projects — from rural roads to housing — and start spending on them. Since these projects would already have some approvals in place, it would be easier to kick-start work.
Get them off the ground now because ministries have already spent years preparing plans, getting approvals. Just get on with it.Pronab Sen, Former Chief Statistician
Next up, the government should begin a major programme to upgrade all health centres across the country. That should be followed by an urban renewal mission. Since a large number of migrant workers have returned home, this period of lower stress on urban centres should be used to beef up urban infrastructure.
Rathin Roy, NIPFP
Roy said the first thing the government should do is communicate to the public of India what the government intends to spend on over the next three years and what that will do.
“I’ll call it my three-year spending battle plan. What you spend on can be decided by arriving at a consensus by getting advise.”
The second step should be should be to put out a calibrated time table on spending and funding.
For immediate spending purposes, we can use Covid-specific bonds. For example, consols are bonds which pay an attractive rate of interest but the principle isn’t paying till perpetuity. They are essentially perpetual bonds.Rathin Roy, Director, NIPFP
In addition, cash of approximately Rs 1-1.5 lakh crore lying in government accounts across central, state and local governments should be mobilised. The government must simultaneously plan on where it can raise money in subsequent years.
Beyond funding, Roy said the government should commit on regulatory timelines and ensure no regulation is rolled back in less than 18 months. It should also look at using defence services land to make India slum-free.
The final thing I would do is have a transparent conversation about three big questions India faces —why was the economy slowing before Covid? Why were tax revenues stagnating? How can the government spend its money more effectively?Rathin Roy, Director, NIPFP
V Anantha Nageswaran, PMEAC
Nageswaran’s first suggestion is to do away with income tax assessments and should rely on the existing mechanisms of TDS (tax deducted at source), advance tax for tax payments. “About 92% of direct taxes come from voluntary compliance and there is enough data with the government to ensure it doesn’t drop off a cliff,” he said. “Doing away with income tax assessment will be a very good signal to the public, businesses on ‘ease of doing business’.”
Nageswaran also said the government should devote a three-month time frame to review macroeconomic data and restore credibility to the state and country-level macro data.
The government should then use this time to appoint a “crack team” of experts across difference disciplines, which will report to cabinet committee on economic affairs and help make crucial decisions.
For the immediate term, India should use the opportunity of dislocation in global value chains. Top officials should speak directly to the top 20 businesses looking to relocate out of China and ask them what is it that would make them move to India. Once this information is in place, the government should ask which states are in a position to deliver on these ideas.
Nageswaran said state chief ministers need to be brought together to help build consensus on three key reforms, which are time-bound, monitorable and deliverable.
Ananth Narayan, SPJIMR
Narayan said the first thing to do is understand we have no idea how long the Covid-19 crisis will go on. “Be prepared to provide whatever relief to people and small businesses. Don’t worry about the fiscal deficit. What needs to be provided should be provided.”
However, along with short term fire-fighting, the government must have a medium-term plan beyond Covid-19.
As part of this, the government needs to look at the financial sector. “Even before the Covid crisis, it was in no shape to fund the country’s aspirations. A one-time solution is needed for the stock of bad loans, reforms are needed on the governance front and much more.”
Similarly, other chronically stressed sectors like power, real estate, airlines must be tackled. “Get in experts, empower them, lock up all stakeholders in a room and don’t let them out till they come up with a solution!”
The government also needs to address ‘ease of doing business’ and create jobs.
The last thing we need to tackle is the need to invest in healthcare, nutrition, education....Our motto has to be ‘even if we eat grass, we have to give our children healthcare, nutrition and education’.Ananth Narayan, Associate Professor - Finance, SPJIMR
Watch the discussion below: