Financial System Must Be A Special Focus As It Delivers Credit To All Sectors: Principal Economic Adviser, Sanjeev Sanyal

The central bank in its just-released Monetary Policy Report for the fiscal is straight to the heart of the matter. The dreadfulness of COVID -19 on the Indian economy is starkly visible with economists peg FY20 GDP growth at 1.5%. And, it could be more severe as it feeds through the global trade channel, demolishing the confidence of investors and consumers as volatility reigns in financial markets. Sanjeev Sanyal, Principal Economic Adviser to the prime minister of India speaks with BWBusinessworld’s Manish Kumar Jha on such issues in the time of the pandemic that is not only wrecked up human lives but the very core of economic activity.

What are you your outlook for the global and Indian economy post-Covid-19? 
There is no doubt that the Covid19 pandemic has already had a large impact on the global economy – lockdowns, disrupted supply chains, financial market volatility and so on. Although it is impossible to put a number to an evolving situation, it is likely that the impact on the world will be larger than that of the Global Financial Crisis of 2008. The Indian economy is also being affected by both its own lockdown as well as by global disruptions. While it is not possible to do a hard estimate at this stage, policymakers are more than aware that the economy is under stress. 

What has been the overall policy strategy for dealing with the economic fallout? 
A lot will depend on how well we contain the medical toll of the pandemic. As the Prime Minister has made clear, this is our first priority. If we cannot bring the spread of the epidemic under control, nothing else will matter. This is why, unlike many other countries, we focused first on the lockdown - no easy task for 1.3 bn people - rather than on announcing a blockbuster trillion-dollar economic package. We have taken a step-by-step feedback based approach. Once the lockdown was announced, we then arranged basic resources like food for the very poor. Next financial deadlines were pushed back and RBI announced several monetary and credit-related measures. Now we will explore fiscal and other measures. Let it be said that we will do what it takes to revive the economy. 

What sectors have been impacted most? Manufacturing output loss with a combined hit to exports and investment demand are some of the expected fallouts. What is your advice? 
Almost every sector of the economy has been impacted by the Covid19 pandemic. From services sectors like tourism and hospitality to manufacturing segments like garments and automobiles. However, the financial system must be a special focus as it delivers credit to all the other sectors. It is like the circulatory system of the human body, and no other sector will survive if the financial system does not function. We have to ensure that the circulation of credit and payments is maintained and that there is no cascade of defaults. 

Due to substantial revenue disruption, private industry-especially MSMEs and SMEs will cite liquidity crunch amid crisis- and possible job losses en mass? What are the measures are you going to suggest for them?
As mentioned above, we appreciate the risk to small and medium enterprises. Every effort needs to be made to maintain the cash-flows of this segment. All forms of government payments to this segment need to be sped up, banks need to be extra sensitive to their credit needs, and large companies need to look how they can help their smaller suppliers and distributors. 

What should be the monetary, fiscal and administrative measures for the Indian economy to mitigate the impact of the recession? 
As already mentioned, every monetary, fiscal and administrative measure will be exploited to revive the economy. Unlike many other countries that already have interest rates at zero, we still have significant monetary space. We also need to enhance the transmission of the monetary impulse. Although we have been very tight on the fiscal front in recent years, note that our public debt to GDP ratio is much lower than that of most developed countries. This gives us more fiscal space than is widely appreciated. Once the immediate impact of the pandemic has passed, India should embark on a national rebuilding mission by implementing structural reforms, initiating largescale infrastructure rollout and, most importantly, exploit the new global supply chains that will emerge from this crisis. 

Oil prices are low and the gap in the logistics & supply chain present an opportunity for India. How do you look at such opportunities and so do you suggest the measures that could bring global investors to India post Covid19 scenarios-potentially fleeing China?
Low oil prices are certainly helpful for an oil importer like India – although it will be partly counteracted by lower transfers from Indian workers in the Middle East. And yes, India should aspire to exploit the opportunities presented by the new supply chains that emerge from this crisis. This requires that we maintain a risk-taking outlook despite the shock. 

COVID like pandemic/crisis presents a sordid health infrastructure in India? What is your take on such foundational issues that possibly guide our policymakers take a good leap?  

There is no doubt that India needs to invest in its health infrastructure. However, it must always be remembered that sanitation is the more important part of health infrastructure. Most of the health improvements of the last two hundred years are due to better drains, toilets and sewage management rather than hospitals. This is why Swachh Bharat is key. One more thing that should be clear from this episode is that our health is connected to that of everyone else. This is why basic health and insurance for the poor is critical. 

Q. Millennium has suffered three pandemics and COVID 19. As both, an economist and historian, does it open a new perspective for you to look at the environment/nature as important as capital? Could you elaborate on your vision? 

The economic history of the world is not about equilibriums and trend lines beloved of most economists and management consultants. It is about sudden shocks, spirals, and unintended consequences. Everything impacts everything else – politics, geopolitics, economics, technology, socio-cultural factors, natural capital and so on. Epidemics have impacted human history on many occasions, as have climate change and another natural phenomenon. Economists who get caught in monthly data and rigid general equilibrium-based models, simply miss the point. This is why I have written several books on long-range history. It is impossible to understand the world economy if you do not understand how it evolves over the long term.