The recent package rolled out by the government does not provide demand stimulus. Do you think we need another set of measures to stimulate demand now that we have opened up?
A lockdown is very easy to get into, very difficult to get out of. There is complexity which is like getting out of a
Chakravyuh. What we are seeing as we talk, is, a gradual opening up, both on the supply side, and a sharp opening up on demand of the essentials. On the other hand, because of the complexity of the lockdown, the manufacturing side’s ability to produce is also an issue. Therefore, how do we sequence and calibrate this balance between demand and supply.
As we open up, there will be pent up demand which will come in some segments. But what is more important is, beyond the pent-up demand, will there be a drop again or will we be able to sustain the level of demand which comes in. So, before the point of tapering, we must have the demand side push coming in.
This government has been pretty strong on macroeconomic balance. Do you think it is time for going easy on those a bit, especially inflation?
Getting growth back is non-negotiable. If that means we are going to do some trade off, we should do it. At a point like this, where fiscal deficit is going to be higher, a little more flexibility on reflating the economy, is not a bad thing.
What is your take on monetisation?
Monetisation is happening in front of us. It’s just the way it is happening. Monetisation can happen in two ways. It is a secondary market monetisation where the RBI is expanding its balance sheet, and I don’t see anything wrong, because there is a sense that primary monetisation has a risk of longer term discipline. If you did primary monetisation, very difficult to establish a fair price of issuance. Secondary monetisation helps that there is a primary buyer, who has determined the price and thereafter, the secondary buyer has bought off that price.
What are the short term and medium term measures that can stimulate demand?
On the short term we will have to calibrate some demand side measures as we go forward. For example, the first thing which we are going to protect is lives and livelihood. If economic agents lead to a loss of jobs, we need to ensure that there is some level of social security. And that is demand boosting as well. That is obviously going to cost the fisc and we have to think properly about our planning on that.
On medium term, we have a significant trade-off challenge. Let’s look at one of the most vulnerable sectors, say, airlines. My view is that now there are four airlines which are strong and which can take care of the sector, if there is a trade off between saving the fifth airline versus putting money into healthcare in a country which has one of the lowest investment rates, my choice, and CII’s choice is, that we must do more for healthcare. There will be a lot of noise, but choices will have to be made.
The second area is, rural-urban rebalance. If there is one defining aspect about covid-19, it is migration. Take advantage of this reverse migration, redefine the investment priorities of where we want the nation’s future.
MSME, has actually.. this package of the government is wonderful. If you look at the Rs 3 lakh crore guarantee which the government has given, it does not hurt this year’s fiscal. It’s over four years. the loss is not going to be Rs 3 lakh crore because many companies will repay. So stuff like this, which is smart planning, including on the demand side, is something we should be thinking about.
CII has not given assessment on the growth side. But what are your industry counterparts telling you, in terms of a bounce back?
I would like to hope that overall Indian economy, with trend growth month by month, to reach a level close to normalisation before the end of this year. Look at the PMI data, GST data, electricity consumption, FASTag numbers, and compare month on month how they are going. That will give us much better assessment.
In the Moody’s report, there was a very strong commentary on the pace of reforms. What is your sense on this entire debate on the pace of reforms?
My view about rating is, as I have said, it’s a view. Finally, lenders and borrowers will decide the price but for me the rating rationale is something which I would pore over carefully. And the important point which is coming out of the rating rationale, is the challenges (with) India’s medium-term growth rate. That should be our focus.
I think there are really some steps which can happen between now and 2023, some which are even longer term. Therefore, prioritisation of health care, education, sustainability and nature, which may be longer, and fourth is rural-urban re-balance.
Many states have announced labour reforms. What is your view on how these reforms were brought about?
Jobs are changing. Just as the digital world is changing jobs. So, the first issue is, what is it that the States should protect and what is it that businesses have to face the reality of consumer choice? Therefore, if any of us decide to buy online, instead of going to a mall, it’s a choice we have exercised.
If that benefits the business model of an online player and hurts the business model of a mall or a shop, it’s the consumers’ decision. I don’t think the state can try and protect fundamental economic forces. It cannot not allow the business reality to change, but is there some safety net available to the citizens of the country at least for some time, till the economy and the country readjust to the new reality.
And therefore, I am not against a flexible labour policy. But it must combine some level of security and safety net, for which the state has a price to pay and that is back to saving people, saving livelihoods.
Where exactly are we on the NBFC crisis?
At this point of time, the NBFC sector has three important challenges. First, on the asset side of the Balance Sheet. Some NBFCs have very large exposure, either real estate, including land, or unsecured consumer. So, there is a concentration. Second, there are significant governance issues. Third is the liability side issue of the balance sheet. Many NBFCs have been disproportionately dependent on the mutual funds. Therefore, a more structural liability side balance, is also important.