Krishnamurthy V Subramanian: Slump in growth part of business cycles, now bottoming out

CEA K V Subramanian at Express Adda on Indian economy, GDP growth

CEA K V Subramanian at the Express Adda. (Express Photo: Amit Chakravarty)

The government’s Chief Economic Adviser (CEA) Krishnamurthy V Subramanian has said the deceleration in economic growth for 13 quarters is part of business cycles that stem from more “prolonged than average” slowdown in the financial sector which has now started showing signs of bottoming out.

Speaking at the Express Adda in Mumbai on Wednesday, Subramanian said: “Credit in the public sector like space is starting to pick up. There are steps that have been taken on trying to reduce this risk aversion. Changes in sentiment, you know, happen over time and I am seeing some signs of it and I am hopeful.”

He said the economic slowdown stems from the financial sector and over a period of time, the growth rate is likely to again hit the 7 per cent mark. “Across the world, there’s a lot of research that shows that if you have a growth slowdown or a recession originates from the financial sector, it is far more prolonged than average. And the fact that what we’ve seen here is because the financial sector explains why we’ve had a slowdown for 13 quarters. So it is actually part of the business cycle phenomenon which then tells me that we basically are quite likely hitting the bottom,” he said.

“Look at the business cycles in India since 1991. On an average, the pace of acceleration has been 12-and-half quarters and the face of deceleration has been nine-and-half quarters. If you look at the recent cycle, which basically accelerated for 13 quarters — which is almost the same as a 12-and-half average that I spoke about — and we’ve decelerated for 13 quarters. This is more than a nine-and-half quarters I mentioned. That’s why actually relating it to the financial sector is very critical,” he said.

CEA K V Subramanian at Express Adda on Indian economy, GDP growth

At Express Adda, Chief Economic Adviser (CEA) Krishnamurthy V Subramanian said the economic slowdown stems from the financial sector and over a period of time. (Express Photo: Amit Chakravarty)

Subramanian said the financial sector needs substantial reforms, structural reforms, which has been said in the FSLRC (Financial Sector Legislative Reforms Commission) report. “This is something that I acknowledge. If you really want to to make the banking sector and financial sector proportional to the size of economy and contribute to the economy to make it even bigger, this (FSLRC), Narasimham Committee and Raghuram Rajan Committee reports need to be thought... and revisited,” he said.

India’s GDP growth is expected to plunge to 5 per cent in the current financial year, according to the Central Statistics Office’s first advance estimates. The International Monetary Fund has projected GDP growth this year at 4.8 per cent. However, its projections for the next two fiscal years are still below 7 per cent at 5.8 per cent for FY21 and 6.5 per cent for FY22.

According to the RBI data, non-food credit growth of scheduled commercial banks moderated to 7.1 per cent in 2019-20 (up to January 17, 2020) from 14.6 per cent last year.

Defending the government’s delayed response to the slowdown, Subramanian said between July 2019 and February 2020, the government announced a “slew of measures” after consulting the stakeholders to help revive growth. The Union Budget 2020, while being fiscally prudent, has also announced a lot of stimulus such as equity infusion in NIIF (National Investment and Infrastructure Fund) and IIFCL (India Infrastructure Finance Company Limited), tax breaks for individuals and the 16-point agenda for rural areas, he said.

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“So the Budget has given a 50 basis point increase within the FRBM Act, a 50 basis points through the direct taxes, a 1 per cent through the basically the equity capital infusion (in NIIF and IIFCL) and that adds up to 2 per cent. Apart from that, there is an increase in the capital spending. So, when you put all these together, what the Budget has actually accomplished is providing the necessary fiscal stimulus without basically throwing caution to the wind on fiscal prudence,” he said.

CEA K V Subramanian at Express Adda on Indian economy, GDP growth

The CEA said the growth rate is likely to again hit the 7 per cent mark. (Express Photo: Amit Chakravarty)

On disinvestment and privatisation, the CEA said privatisation of profit-making public sector companies, such as Bharat Petroleum Corporation Ltd, is a good move that shows a change in policy stance and will help the economy. “I think when privatisation is being done to cede space to the private sector, and thereby enhance efficiency in the economy, I think that is a sign that some important economic principles that people like us adhere to are actually being heard and being implemented as well,” he said.At the Express Adda, Subramanian was in conversation with Anant Goenka, Executive Director, Indian Express Group, and P Vaidyanathan Iyer, Executive Editor — National Affairs, The Indian Express.