Chief Economist of Goldman Sachs Prachi Mishra, in a paper presented to the Delhi headquartered think tank NCAER, has said the biggest worry is that the government has fallen short of outlining a clear strategy to steer the economy out of the COVID-led recession.
“Ratings agencies are more concerned about India not having a fiscal and administrative strategy,” Mishra observes. “With the economy likely to contract by 5% in the current fiscal we are talking about a loss of 20 lakh crore. What’s is the framework, the government strategy to make up for this loss,“ says Mishra.
And it’s the steadfastness to fiscal rectitude, rather than fiscal expansion that could make things harder for India, the economist states.
“This is the deepest crisis for India up to now and policy support has been even less aggressive than measures taken during the Global Financial Crisis”.
“Discretionary fiscal policy support has been very tepid so far and this will hinder economic recovery. Targeted support for businesses and households is very tepid. We have estimated the direct fiscal support at 1.8% of the GDP. The fiscal impulse is actually zero”, says Mishra.
Add to this, the government’s message to ministries to not spend their full budgets, and the actual fiscal impulse is negative, Mishra explains.
“The FY21 budget is totally irrelevant now,” the economist observed.
Prachi Mishra also highlighted, “The virus situation is escalating very rapidly in India, this raises the risk of spread of infection as economies open up. And while 8 states account for 80% of the corona cases, in the last week or two the virus is spreading beyond states of Delhi, Tamil Nadu, Gujarat & Maharashtra.”
Mishra lists the pandemic not being brought under control in the next few months as a clear medium-term growth risk.
Add to this, the domestic financial risks arising out of credit guarantee announcements, loan moratoriums, all these will pose a host of implementation challenges.
The risk of regulatory forbearance, rise in NPAs, very poor credit off take, sharp upward pressure on the fisc and lack of a coherent economic strategy, all these are major roadblocks on the road to recovery, she adds.As Mishra said, “With India showing a rise in daily new cases apart from adjusting for testing and a likely annual GDP contraction of 4.5%, FY21 is going to be a terrible year for India.”