'Rainy day' is here, spend an additional Rs 10 lakh crore, says former CEA Subramanian

India should plan for a negative growth and spend an additional Rs 10 lakh crore to combat the "economic deluge" caused by the coronavirus outbreak, India’s former chief economic adviser (CEA) Arvind Subramanian has said.

“We save for a rainy day, and when a rainy day comes, you have to spend. This is not a rainy day, this is a deluge, it’s like the Hindu pralay. This is pralay in terms of economic things… What is all this kind of, you know, prudence for? (It) is not to actually save for a rainy day, but to spend for a rainy day,” he told the Indian Express. He was speaking at the Express Adda, which was held online due to the viral outbreak.

The International Monetary Fund (IMF) growth forecast of 1.9 percent was “mystifying” as India was already struggling, he said.

With the lockdown and fiscal response being below even 1 percent of GDP, “I cannot see how even allowing for the fact that India is a more dynamic economy, how India’s growth rate cannot decline by the orders of magnitude that the IMF is projecting for the advanced countries. I think the IMF forecasts for India are absolutely mystifying and bizarre... We should plan for negative, maybe substantially negative, growth rates in this financial year”, the newspaper quoted Subramanian as saying.

India should spend at least five percent of GDP, or Rs 10 lakh crore, financed “responsibly through monetisation” and only as a “one-off measure” to find resources for the duration of the crisis, he said.

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“The crisis provides an opportunity for countries to emerge stronger by being decisive or this can even aggravate pre-existing vulnerabilities.”

The post-coronavirus world would see less dependence on China, which would mean de-globalisation, he said. “How we regulate foreign direct investment (FDI) will be conservative. Secondly, the surveillance state – in dealing with a pandemic would be effective. And this whole move towards populism and illiberalism, I think that, again, is an open question.”

Speaking about the Reserve Bank of India’s measures to infuse liquidity, the former CEA said it had not translated into credit due to “4Cs – Courts, Central Vigilance Commission (CVC), Central Bureau of Investigation (CBI) and the Comptroller and Auditor General (CAG)”.

“There is no doubt in my mind that the risk of lending should be borne by the government in this situation. This could be via a credit guarantee scheme, or a separate government fund, like, in the United States,” Subramanian, who is a Visiting faculty at Harvard Kennedy School, said.

The 15th Finance Commission should reconsider the needs of states, he said. “The quickest ways of getting money to the states would be to increase the deficit financing by the RBI,” Subramanian said.