Former Chief Economic Adviser Arvind Subramanian on Sunday warned that the Indian economy is headed for a growth “slowdown” due to tight financial conditions, stressed agricultural sector and slower exports amid softening global growth conditions. Subramanian, while speaking at the Delhi launch of his book ‘Of Counsel: The Challenges of the Modi-Jaitley Economy’, also said that given the political calendars, it would be ambitious to expect huge reforms to perk up the economy at this stage.
For the 2019 general elections, Subramanian said all major political parties’ manifesto are expected to have some promise related to Universal Basic Income (UBI), an idea promulgated by him earlier in Economic Survey 2016-17. The former CEA also urged his newly-appointed successor Krishnamurthy Subramanian, to look at CEA’s role as “not just narrow sitting in North Block” but much more than that.
“We have to brace ourselves for a slowdown for some time. First of all, financial system is under stress, financial conditions are very tight. So, this is not conducive to rapid growth because you need financing and that continues to remain tight. Agricultural sector remains under stress. That vulnerability kind of remains,” he said.
He further said, “International environment is getting much softer. There is a global growth slowdown. Europe is slowing down, Japan is slowing down. The yield curve has inverted so we think may be there could be a broader slowdown, which means that while the vulnerability on oil will remain in check, our growth, our exports will also be soft.”
As per latest data, the Indian economy grew at the slowest pace in three quarters at 7.1 per cent GDP growth in July-September.
Raising questions over the recently released GDP back series by Niti Aayog, Subramanian said the other indicators for same period show a big difference, adding that it should be immediately handed over to experts and then have expert technical view, which is “not associated with any other institutions who do not have expertise in the matter”. When pointed that Niti Aayog stated they are the technical experts on it, Subramanian said it’s an “excessive claim”.
He also said that the success of Goods and Services Tax (GST) should not be measured against Budget targets that have been “unreasonable”, but relative to the growth of the economy. “To judge the GST by what the budget demands of the GST, is unreasonable. I will say it frankly, the budget has made unreasonable demands on GST. It has asked for 16-17 per cent (increase),” he said.
He further said though one GST rate is not possible, but the GST Council could be forced to consider no more than three rates–main rate, low rate and high rate along with a single cess rate. On the fiscal deficit target and the adjustments that take place in PSU space to meet it, Subramanian said there should be less fixation on the deficit targets but stressed that India needs an independent fiscal council, which will monitor the accounting in real-time, such as the ones seen in the UK and the US.
Subramanian also spoke on the issue of utilisation of excess reserves held by the Reserve Bank of India (RBI) saying that they could be used only for recapitalisation of banks and not for government’s deficit financing, especially before elections.