Principal Economic Advisor to the Government of India Sanjeev Sanyal on Saturday said that the country’s Gross Domestic Product (GDP) will take a “significant hit” in the first two quarters of the current fiscal when the Covid-19 lockdown affected economic growth.
“There will be a large drop (in GDP) for April-June quarter and the July-September quarter will also be hit. Putting a number to it is very difficult. The Reserve Bank has also pointed this out. It will be a significant hit,” said Sanyal while speaking at a webinar on “Atmanirbhar Bharat” hosted by the Indian Institute of Management-Ahmedabad (IIM-A) on Saturday evening.
“There are two parts to it. One is lockdown driven, which I am not too concerned about. That will pop back up next year when presumably we will not be facing lockdown. The problem is about hysteresis. Not the one time loss, but the trajectory change that may have happened. Let’s say because people have permanently stopped doing certain kinds of activities, businesses have shutdown, migrants have gone back and never to come back —- a permanent change in direction. In that context we are obviously concerned,” he said while replying to queries posed by Professor Sebastian Morris, faculty of Economic and Public Systems at IIMA.
Sanyal said that India did not toe the line taken by United States or European countries in addressing the drop in economic growth. “In the last seven months, we were not focussing on rebuilding. Our focus was on cushioning and safety nets of the system…. We did not do what many people told us to do, which is to go out and spend a large amount of money upfront. We considered it not to be very useful to be pressing the accelerator, just when we were pressing the brakes as well. If you look at the US, they gave out large amount of cheques. Even in Europe, large amount of cheques were given out. The discovery is, some part of it got spent, but a lot gets saved and as a result the government runs up this debt. But the demand is low as you are in lockdown. So the same thing would have happened here.”
“In fact, the partial data that we have from Jan Dhan account transfers shows that while the poorest section would have literally run out of money, even among the poor, people have generally saved the Jan Dhan transfers. Because people who are uncomfortable about their job security are most likely to save. If you are expecting a demand build-back, it is not going to happen,” Sanyal added.
He said the government has “space” on the fiscal and monetary fronts to push the accelerator and the biggest push will be towards “infrastructure build-up.”
In a post-Covid world, he said old jobs will be destroyed and new ones will be created.
“For years, our labour markets were jammed up and not flexible. We are putting a huge effort of unwinding them, both at the state and central level. This does not mean that India does not need labour laws. Of course it does, but the emphasis of those labour laws is on safety and on working conditions and at the same time it is aligned to flexibility in order to adapt to a new post-Covid world where old jobs will be destroyed, but new will jobs will also be created. We need a labour force that is able to adapt to this environment,” he added.
Talking about “Atmanirbhar Bharat”, Sanyal said the government will take “unorthodox measures” to protect national interest.