Given the resources of the country, magnitude of the shock, we have done pretty well actually and above all most important factor is the management of the COVID crisis itself, said Arvind Panagariya.
Tamanna Inamdar: As ‘Janta Curfew’ completes one year, looking back do you think that the lockdown was a good idea or was it a mistake?
Arvind Panagariya: To the question of whether the lockdown was the right thing to do, I still think that at that time the decision was made based on the information we had and it was the right decision. So, at that point strict lockdown was the only option in a way that was implementable and we could buy some time to beef up our infrastructure to fight the virus. So I think that prime minister made the right choice.
Tamanna Inamdar: About the economic recovery, we have been marvelling at the resilience India has shown in terms of Q3 GDP data. How would you look at the quality of India's recovery?
Arvind Panagariya: The decline of 24% in the April, May, June quarter was the sharpest of any of the major economies. The decline in the following quarter had dropped to something around 7.8% and then in the subsequent months we have continued to progress fairly well and we are more or less close to the pre-COVID level of economic activity now. So, recovery has been quite good.
Given the resources of the country, magnitude of the shock, we have done pretty well actually and above all most important factor is the management of the COVID crisis itself. If you look at the death rates in India, among the 20 most affected countries India's death rate is actually the lowest which is quite remarkable. In the end, it is all about human life.
Tamanna Inamdar: Employment figures point to the fact that we are far away from pre-COVID level. Income levels especially in the informal sector are still quite battered and how can we really overcome that?
Arvind Panagariya: Throughout the year, the threat of infections which now has reappeared did take a toll on economy, but the recovery has been progressing quite well and what you mentioned is correct but it was largely concentrated in the first two quarters of the COVID. Now the threat has reappeared and it is precisely in some of the states which account for large proportion of economic activity, so Covid management becomes the first order of business to keep the economy going. On the management of the economy by the government, I think it is doing absolutely the right things.
Government has turned out to be quite right in its earlier approach of not going whole hog through fiscal expansion because it simply would not have translated into actual expansion.
Now, the government actually has been expanding as fast as it can, the fiscal expansion has come at the right time. Fairly generous infrastructure provisions have been made in the Budget. In terms of the policies, we are doing largely all the right things but again it will depend on how well we are able to contain the current rising wave of infections.
Tamanna Inamdar: I would like your views on the banking system and the NPA situation. How has moratorium helped the businesses and what is the possible impact on NPA problem?
Arvind Panagariya: Implementation of asset reconstruction company or the bad bank is the key. It is extremely critical that the particular piece of the Budget announcement is quickly translated into action because our NPAs have been very large and we have discussed it throughout the year that we went into this crisis with a very stressed financial sector and that partly sort of accounts for also the large decline we experienced in the GDP growth. To come out of the current crisis, de-stressing the financial sector is probably the most important specific policy measure that the government needs to take and that, of course, means cleaning up the NPAs.
With moratorium, we did kick the can down the road, bankruptcies induced by COVID will happen but it was the right policy to make the healthier firms sail through the crisis. I would have actually preferred a much larger recapitalisation package for the banks. The government announced Rs 20,000 crore, this would probably turn out to be too small. I think this will turn out to be smaller especially if we are not able to act fast enough on this bad bank instrumentality.
Tamanna Inamdar: What are your thoughts on the DFI which has been announced recently? How crucial is this to kick off?
Arvind Panagariya: Yes, I share some of the scepticism based on 2016 national infrastructure fund or something it was called. With 10,000 crore rupees it was supposed to be started and hardly any progress was seen thereafter. I am not close enough nor have an assessment, but I do hope that we move on all fronts rapidly in terms of land acquisition, clearances for environment reasons etc. in order to make DFI a reality.
Tamanna Inamdar: Talking of coronavirus cases, we are very close to the peaks. Do you think this could wreck things as Nomura says mobility has reduced and this is impacting business activity?
Arvind Panagariya: How rapidly can the economy recover is going to depend on how well we are able to contain the infections and this particular wave is really very troubling. We are seeing daily spikes which is going to impact the mobility. Many of the restrictions that we had lifted will have to be brought back. The government has no choices in these matters.
Vaccine supplies need to go up in the areas which are heavily impacted. Also, we can restrict the vaccines for 50 plus people in the areas that are not suffering and rather try to vaccinate under 50 in affected areas. So that is one way to re-distribute the vaccine supplies.
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