Fiscal measures likely once uncertainty around COVID wanes: CEA

The government may announce fiscal measures to push demand once the uncertainty related to COVID-19 crisis wanes, Chief Economic Adviser K V Subramanian said on Wednesday while pointing out that counter cyclical policy is important.

The government may announce fiscal measures to push demand once the uncertainty related to COVID-19 crisis wanes, Chief Economic Adviser K V Subramanian said on Wednesday while pointing out that counter cyclical policy is important. If there is COVID-19 vaccine, the uncertainty about the pandemic goes down significantly in the market, he said at a webinar organised by FICCI.

"The government is willing to do what is necessary in terms of government consumption but timing of this is extremely important...Till we have uncertainty, even if people have money in their pockets, they may decide to keep it in their bank," he said. Giving an example, Subramanian said, there has been an increase in deposits by Rs 20,000 crore in Pradhan Mantri Jan Dhan Yojana.

People are saving rather than spending due to uncertainty, he said, adding, even Jan Dhan account holders whose marginal propensity to consume is very high are indulging in saving. "The right point would be if vaccines come and thereby uncertainty goes down. I think the time would be very right for the fiscal push which will really generate demand even for discretionary items," he said.

Demand is important, countercyclical policy is important but the timing is also as important to ensure value for money spent, he added. Finance Minister Nirmala Sitharaman on Tuesday said that the government is open to taking more actions in future to boost economic recovery.

To deal with the coronavirus crisis, the government in May had announced one of the world's biggest stimulus packages worth Rs 20.97 lakh crore with a focus on the survival of the business and drawing a road map for the revival of the economy. Experts and analysts said the package, which is 10 per cent of the GDP, largely focussed on supply side and hardly addressed demand side constraints.

Pointing out that the banking sector is holding back growth in a significant manner, Subramanian said India lags behind in global size which has affected investment. Thus, there are problems of scale and quality of lending, he said, adding the banking sector in India has been also lagging in terms of technology adaptation like data analytics.

State Bank of India is the only bank which is in the top 100 global bank list. Fintech can provide scale and improve the quality of lending especially to large corporates and help bring down the bad loans, he added.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)