Moneycontrol PRO
Open App

COVID-19 impact | Former RBI Governor D Subbarao says India's GDP growth may rebound to 5% in FY22

Subbarao was speaking at a webinar on 'Indian Economy - Navigating through a Crisis', organised by the Centre for Financial Studies (CFS) at Bhavan's SPJIMR business school.

May 27, 2020 / 08:22 PM IST

Former RBI governor Duvvuri Subbarao said that country's economy is likely to decline by 5 percent in the current fiscal but may expand by around 5 percent in the next financial year.

Leading rating firm Crisil on May 26 stated the Indian economy may shrink by 5 percent in fiscal 2021, adding this recession could be the country's fourth since Independence and perhaps the worst to date.

"I do believe that getting up to 5 per cent next year (FY22) is quite probable. The reason I say that is because this (COVID-19) is not a natural disaster. Our factories are still standing, our infrastructure and transport systems are still there," Subbarao said.

He was speaking at a webinar on 'Indian Economy - Navigating through a Crisis', organised by the Centre for Financial Studies (CFS) at Bhavan's SPJIMR business school.

"Once the lockdown is lifted and the economy is given a green signal to restart, I am sure that we can ramp up pretty soon and reach at least 5 per cent (growth rate)," he said.


COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more

Speaking at the same webinar, former deputy chairman of the erstwhile Planning Commission, Montek Singh Ahluwalia, also said there is a possibility of 5-6 per cent growth in fiscal 2021-22.

"But it would be mistake to treat that as recovery because if you are down 5 per cent this year (FY21) and you are up 6 per cent from that level then what it means is that during FY21-22 you will be at the same level as you were in 2019-20," Ahluwalia pointed out.

According to him, the country is going to face its worst recession in the current fiscal.

Subbarao further said a sharp decline in growth would mean a disruptive adjustment even for a rich country.

"For a poor country like us, it would mean enormous pain and hardship for millions of low income persons, firms and enterprises, especially in the informal sector, going bankrupt and it could mean our financial stability becoming vulnerable," he added.

Amid this grim situation, the former RBI governor said he sees two silver linings -- relative stability of the external sector and bumper agricultural crop production, which would support the economy.

Commenting on the over Rs 20 lakh crore fiscal stimulus package announced by the government, Subbarao said, "Within the fiscal constraints of the government, they have done a good job."

He also lauded the government's decision of additional borrowing in this fiscal.

"I, for one, believe that the government should borrow more in order to spend more. That is a moral and political imperative. But I don't support the view that the government should resort to open ended borrowing," Subbarao said.

The government has increased its market borrowing programme for the current financial year by more than 50 per cent to Rs 12 lakh crore from the Rs 7.8 lakh crore estimated in the budget.

Subbarao added that the stress in the country's financial system could deepen post the coronavirus crisis.

"In January, before the COVID crisis hit us, we were extremely worried about our financial sector, health of our banks, NBFCs, NPA levels, trust deficit in private sector banks. All those parameters are going to get worse as we come out of this crisis," he said.

According to Ahluwalia, there is a need to undertake serious tax reforms that are long overdue.

"We should now set up a truly high level multi-disciplinary committee of people advising the kind of tax policy to be announced in the next budget. It should include a serious re-examination of the GST where there are huge leakages taking place for a variety of reasons," Ahluwalia said.

The session was moderated by Ananth Narayan, associate professor (finance) at Bhavan's SPJIMR.

Follow our full coverage of the coronavirus pandemic here.
first published: May 27, 2020 07:18 pm
ISO 27001 - BSI Assurance Mark