Government Open To More Measures For Sectors Hit By Second Wave: Sanjeev Sanyal
India’s Principal Economic Adviser Sanjeev Sanyal. (Photo: BloombergQuint)

Government Open To More Measures For Sectors Hit By Second Wave: Sanjeev Sanyal

The central government is open to offer more support to sectors hit by the second wave of the Covid-19 pandemic, according to Sanjeev Sanyal.

The economic impact of the second wave is likely to be “much more sectoral”, the principal economic adviser to the Finance Ministry told BloombergQuint in an interview. There are certain sectors where there has been a big hit, particularly travel and tourism. They went through one big hit last year and again a second one this year, he said. “…but I think overall the economic impact will be smaller this time around.”

The Reserve Bank of India has lowered India’s GDP estimate for the ongoing fiscal by 100 basis points to 9.5%, given the impact of the second wave.

All times are uncertain, but these, according to Sanyal, are particularly uncertain times. The most important thing here is resilience and the ability to respond quickly rather than to have some grand plan, he said.

Three probable outcomes, according to him, will decide the government’s response and the nature of stimulus.

  • One, where inflation is a bigger concern.

  • Second, where growth is a bigger concern.

  • Third, wherein economy revives and inflation eases, but some sectors continue to struggle.

My own sense is in the next four-six weeks we will know which of these paths we are going by. But meanwhile, we need to do two things: first, getting the February budget implemented, and second, we have to open the economy up. And, therefore vaccination is important. The focus should be on vaccination because unless we get the vaccines out there, the game doesn’t even start.
Sanjeev Sanyal, Principal Economic Adviser, Ministry of Finance

Also read: From Cooking Oil To Petrol, Your Household Budget Is Getting Stretched

If the economy is recovering very sharply then clearly inflation will become a bigger issue because “not only would you have the first lot of fuel price impact, you will also have the second order passing on of that”, he said. “So, under those circumstances, we will be more concerned about inflation than we would otherwise be.”

On the other hand, in those situations, revenue will be less of an issue for the simplest reason that growth is happening so revenue is also coming in, Sanyal said.

At this stage, Sanyal said, the possibility of fiscal slippages "will be small given that the economic impact of those two months [April and May 2021] was not as severe as people feared it would be.”

India, in the Budget for 2021-22, had set a fiscal deficit target of 6.8% of GDP. But the second wave led to additional expenditure for the government, especially on account of higher food subsidy payment due to the free food grain plan further extended till Diwali.

Also read: Household Financial Savings Drop For Second Straight Quarter, Debt Mounts: RBI Data

Bond Index

Sanyal admitted that there are certain “niggling issues” that have to be sorted before the Indian government can list domestic securities on global bond indices. The proposal, he said, is likely to be implemented in the current fiscal itself.

“We are putting together various micro-structures for it, Euroclear and all that is getting done. The bond indices people are also examining it, if they come back and tell us there is more to be done, we will look at that,” he said.

India has been attempting to make an entry into global bond indices for years. The inclusion may help India manage higher government borrowings by drawing in a new pool of money. The government plans to borrow Rs 12.05 lakh crore this year. The borrowings are expected to remain high in the next few years as well.

The larger market borrowing for the current year, according to Sanyal, was necessary to provide fiscal support. “They are what they are given that we needed to make larger fiscal deficits to accommodate the requirements of the time. We needed to provide fiscal support to the system and it was quite right that the RBI provided monetary support to the system.”

Watch the full interview with Sanjeev Sanyal:

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