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    Don’t rule out India rebounding to 7% growth in H2FY21: Arvind Panagariya

    Synopsis

    Former VC of Niti Aayog says India’s response to coronavirus has been phenomenal, no matter what the critics say.

    Arvind-Panagariya-1200ETMarkets.com
    I want to begin by asking if you are doing fine. You are joining us from New York, where there seems to be a mess. They have just crossed over one lakh cases.
    Yes, indeed. I think New York state has been the most affected within the US. The US is the most affected country today in terms of number of cases, and within New York state, New York City accounts for almost half of the New York state cases, so it’s very badly impacted. I am in Day 25 of my own voluntarily lockdown in the apartment with my wife here. We are doing fine. We got our supplies as usual. So, we are able to pull it off. We are keeping our humour intact.

    Well, stay safe and maybe we should have a separate conversation of how you have dealt with 25 days of lockdown. We are on Day 10 to 14 here in India, depending on when people went into self-isolation. But let us come to the big question. India has clocked about 2,500 cases right now, and the US of course has the largest number of cases. While many feel relieved that the cases are relatively so few in India, the question is are these numbers actually representing the true picture?

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    This is where I think the number of deaths come in handy. That is the number which is reliable, that is a number we can see in real time. And the number of deaths indicates to me that India has been less affected. To that we should also add the important fact that India is a very large country of 1.3 billion people, and therefore, we should also look at this at the state level. Clearly the states of Maharashtra, Kerala, Karnataka and Delhi have been affected much more. But if you go down to several of the other states like Bihar, Odisha and smaller ones like Goa, Himachal Pradesh and Uttarakhand, these are states which have been very little impacted. In some states we have got cases only in single digits. So while the focus naturally has to be on the states, where the cases are many, it sometimes hides the fact that very large parts of India are doing okay. They are safe. This is a not a reason for complacency. But we can take some optimism in the fact that a very large number of our states and people are relatively safe from this menace.

    Those are the figures right now, but the question is for how long? The lockdown was being talked about for quite some time across the rest of the world. India was ahead of the curve, and we have been praised maybe for that. That is why we have limited our numbers. But it has also come with its own impact, and pretty severe repercussions for a whole host of people like migrant workers, for companies, for supply chains etc. Do you think we can economically survive an extension of the current lockdown and for how long?
    I have absolutely no doubt in the resilience of India. Ye have come out of a very significant poverty, and the prosperity we see around here is relatively new. So we know how to deal with adversity, and thankfully, now with the growth we have had in the last 20 years, we do have some social safety nets. We also have some resources. The ability of the government to deal with poverty and difficulties and specific groups that get impacted heavily is a lot better than it was 30 years ago.

    So I am quite convinced that we can overcome all the hurdles. People are cooperating, they do realise this is for the good of everyone. If there is a need for extending the lockdown by a week or two, perhaps even by three, that is a call of course Prime Minister and his advisers will have to take, but I think we can do it.

    The government has already done the most important thing, which is shelter and food. It seems to me the government, particularly state governments, have faced it and managed it in big way. So it is partly a matter of resources, partly a matter of organisation and management. We have had some difficulty with migrant workers, but the government managed to move in quickly, open vast numbers of shelters in areas where the migrants had come out in such large numbers, and they have been now sheltered and being provided food. Those are the two important things. Then one can begin to think in terms of cash transfers, which is a part of the original package that the Finance Minister has announced, but one can go further.

    I also want to talk about what is going to happen to India post Covid-19. How do the world economy and Indian economy look like? There is a report by Fitch today which says in India we could clock a GDP growth rate of 2% in FY21. Do you think it will be that bad? What would a 2% growth rate -- the lowest in 30 years -- really look like in a country like India?
    There is a lot of uncertainty right now, as to how the phasing out of the lockdown will play out, how the external trade will be opened, how the flights and transportation will be opened. Because everything is closed down, it looks overly pessimistic. But we did overcome the 2008 Global Financial Crisis and came out of it relatively unscathed and started clocking 8-9% growth in those years. I have no doubt we will come out of this one as well. We will soon have greater clarity whether it ends up being 2% or it actually ends up being 7-8%. , but nothing is ruled out here. It is all going to depend on how fast we are able to flatten out the corona curve, so that we can have greater clarity in another three to four weeks. To do that, I think what we need to do is prepare personally for the post-lockdown period.

    In what scenario, do you see 7-8% growth?
    After 2008, if you had asked somebody, nobody would have said 2009-2010 will end up being 8%-plus. Nobody was predicting that in those days. But those are the numbers we have had. So I am just being an optimist. I do not rule that out, just as I cannot rule out the 2% that Fitch has predicted, which can also happen. And I am certainty not ruling out getting to 7% or so in the second half of FY21. Because even though it looks like the supply chains have been disrupted, past experience shows supply chains do rebuild themselves very quickly and people do rise up. The human spirit is absolutely paramount here.

    Sectors like tourism, aviation, hotel -- which depend on discretionary spending -- do you see a longer and larger hit there? Because these businesses have already started to feel the pain and have sort of passed it down in terms of either pay cuts or job losses?
    You are absolutely right, these are the sectors that are most impacted. Airlines, in particular. But we do not mention railways. I am sure railways has been hit very hard also. Anything that carries passengers is going to be hit. These sectors certainly will remain more impacted in case of a slightly longer-term lockdown. Tourism does take time to come back to life. But at the same time, we also have all the corporation in IT sector, in pharma sitting on a lot of cash. If financial markets are kept alive, which is really the responsibility of the RBI, then a lot of the other sectors can come up rapidly. You know sectors such as FMCG can be fuelled by government transfers to people. The MNREGA for instance. That is a solid Rs 45000 crore, which is available, and that can be converted through an ordinance or something temporarily at least for a year or so into cash transfers.

    You can take the average number of days of work for a particular worker in, say, the last two years and in that proportion, you can transfer that MNREGA money automatically to the people. That is a money which is already allocated for expenditure, and that is a money which can be passed on rapidly. It will require a legislative change, but that can be done through an ordinance. We need to do that sort of creative thing. Then, of course, we need to invest heavily in the health sector, because we need to build up our defences. We need the very large supply of masks etc for the post-lockdown period. If the masks are available, and to me it seems that we should even encourage people to make their own multiple layered masks because if everybody wears a mask then we practically eliminate the risk of passing on the contagion. Because if both the person who is going to give the infection and the person who is going to get it have masks on them, the probability really drops to very low.

    That is the one thing we need. The Czech Republic mandates masks and within five days they eliminated all the infection. If we can mandate it, it will eliminate a lot of risks. Wearing a mask is common in places like Taiwan, South Korea, but that’s a long way to go.

    The government’s response in terms of the lockdown has been appreciated. We have been ahead of the curve and clearly what pain the US is suffering very sadly truly highlights that we have been good on that front. But what about supporting businesses? Some businesses have diverted and innovated to try and feed the current demand, whether it is making ventilators or masks or sanitizers, but there are whole parts of this economy right now which are on pause. They are bleeding at the same time. The government’s priority, and rightly so, seems to be the medical one, but can we keep the economic package and support off till it is too late?
    First let me say, our response to coronavirus has been absolutely phenomenal, whatever any critic might say. The truth of the matter is that, I did not anticipate the government to really get its act together in the way it has successfully done. For example, tracing thousands of these cases that got discovered recently originating from Delhi was phenomenal. The way they have all come together in so many different states that they are spread out deserves a huge applause, a huge credit.

    On the economic package side, first of all we know it’s very important for RBI to ensure that cash flows continue uninterrupted. So RBI has a huge role to play there. Finance has to be available to MSMEs as well as corporations. Also, any generalised incentives for investment that can be given, for example, temporary holiday on the long-term capital gains tax or other investment-oriented incentives that can be given which are generalised rather than targeted at specific sectors is being given. That is good, because some sectors like IT, pharmaceuticals etc have been sitting on a lot of cash, which can be quickly converted into investment.

    Now for the specific sectors, it is going to be a little tough going. Once we get down to phasing out the lockdown, construction is an area where some targeted action may be taken. For tourism, it is to be tough going, and so the government should perhaps find ways there. By the way, going forward we will also need to build up some information base on informal workers, and migrant workers to be able to better handle situations like this.
    In rural areas, we have a lot of good access to farmers under Aadhar and Jan Dhan accounts. But for migrant workers we have no Jan Dhan accounts. We did not have a database. So that needs to be created for the future, so that in situations like this, they can also get some cash transfer.

    We are a very different and diverse kind of an economy.
    Gradually, we will be perhaps opening our international borders and allowing flights to come in. I have heard Aviation Minister Hardeep Puri talk about opening up flights and so forth. This is one thing we did not do in the first round. Now we have to be careful, as passengers coming in from outside ought to actually arrange to test them before they are released into the general population. Frankly, in the previous round, self-quarantine did not seem to have worked. There were quite a few cases where people did not self- quarantine and went off on trains.



    ( Originally published on Apr 04, 2020 )
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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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