Economy needs effective stimulus, says NITI Aayog Vice Chairman Rajiv Kumar

India faces a severe slowdown in economic growth due to the nation-wide lockdown to control the coronavirus pandemic. While many worry about inflation in the short-run, NITI Aayog Vice Chairman Rajiv Kumar tells DH’s Annapurna Singh he worries about a coming demand slowdown and deflation.

There is a rising demand for a second stimulus package, and some are seeking as much as Rs 15 lakh crore to shore up the economy. What is your view?

The government has given one stimulus and it may be engaged in preparing another one. I cannot pre-empt that. But we have to cut our coat according to the cloth. The stimulus should be calibrated but effective to tackle the crisis.

Many economists expect a sharp recovery next year. The IMF has projected a 7.4% growth in FY2022. Are you expecting a V-shaped recovery once economic activities restart?

In my view, the recovery will begin in the third quarter (Oct-Dec) this year. And with a resilient private sector like ours, I am sure we will be back on track very soon. The second half of 2020-21 should see good growth. I do not subscribe to the projection that GDP growth could fall to 0% or that Indian too could slip into a recession.

You have raised deflation fears post-Covid crisis. Some are flagging inflation concerns.

Yes, there could be a slump in demand for goods and services as a result of the pandemic as it has been in the case of the global oil prices. There is no reason for agriculture prices to move up as it has been categorised as an essential commodity. There could be a huge decline in demand in other sectors, too. The virus will result in a simultaneous supply and demand shock. Lower consumption will hit manufacturing. So, the real worry now is deflationary pressure in the economy and not inflationary pressure. The RBI too has said that inflation will be below 4% in the third quarter.

The services sector – over 60% of the economy -- has been severely hit. Hospitality, tourism, etc., are not expected to recover anytime soon.

Not all sectors will be uniformly impacted. Yes, travel and tourism sector will see a great impact because consumers will restrict their outdoor activities to essential work. But the Centre and the state governments are working to bring the situation back to normal. Right now, the most important thing is to save the lives of people.

Companies may have to worry about labour shortages as migrant workers have moved back to their native places. Will wages have to rise to attract labour?

The big corporates, who have retained their labour force and are paying their wages and rent, will face no problem. There are those like Arun Dairy in Chennai, which employs about 1,500 workers, and KPR Mills of Tirupur, which has a 17,000-strong workforce, who have been paying their workers. Those will not face any shortage. The problem will arise for small and medium companies which have been shuttered. My sense is that once economic activities begin, the workers will start returning. I do not think wages will move up significantly.

There is a worry that remittances from Indian workers abroad, especially in the Gulf, will fall as global oil prices fall, and also that these workers could return and compete with domestic migrant workers for jobs.

This is not the first time that oil prices have crashed. In 2006-7 too oil prices had seen historic lows. India had then managed pretty well. Both on the remittances and jobs fronts, I do not think they should cause a major worry. As regards, their absorption into the workforce, I think there is great scope inside the country. For example, Kerala substantially employs migrant workers from other parts of India. Migrants into Kerala outnumber those in the Gulf nations.

ILO has said the Covid-19 crisis and lockdown will force 400 million workers in India deeper into poverty.

The fear is unfounded. With India’s food security programme and other welfare schemes, there is no question of such a large workforce falling into a poverty trap.