Interview | Our response will, to some extent, depend on exactly what trajectory the economy will take: Sanjeev Sanyal

Q. The finance minister announced a mega relief package a few weeks ago, with some outlay but mostly credit-side measures aimed at sectors like tourism, health infrastructure and the smallest of the small lenders. Plus, there were announcements earlier of fertiliser subsidy and food security. Which other sectors do you think the government should be targeting, going ahead?

A. I will take a step back and give you a sense of how we are thinking about the current impact of the second wave. First of all, we had presented a fairly expansionary budget in February. We are in the beginning of July. We still have to implement that budget. So I think, remember that there is a base case of we have to get out there and implement the various things. Most people agreed that those were good measures. So we need to implement them.

Secondly, because we got this second wave, and there was a lot of uncertainty around it, we reinstituted a few things. For example, the food programme for the poor. We put in place credit guarantees for MSMEs and others. So, that is essentially reinstituting a safety net.

Looking forward, what we should be doing will, to some extent, depend on exactly what trajectory the economy will take. There are three possible directions that the economy can go from here. One possibility is that once we lift the regional lockdowns, you will get a bounce-back in some of the sectors. There is already a fair amount of momentum in the economy -- in sectors like exports, construction, etc. It may be that you get a bigger boost from this opening up, and growth really accelerates.

The problem then will become inflation. After many, many years, inflation is something everybody is watching. In that situation, our macro mix incrementally will be about thinking through the inflation demand feed-through, and consequently, we will have to manage the mix. That is one scenario.

The second scenario is that you get the bounce-back from opening up the economy, and then it all peters out. Let’s say consumption slows down. In that situation, we will have to provide further support to the economy, if necessary. In that situation, the impact on inflation will perhaps be not that important. Getting growth going becomes the main aim.

There is a third scenario when growth returns and there is even perhaps a little bit of inflation, but certain sectors do not revive. They could be hospitality, leisure, travel or something else. In this case, providing fuel to fire generally will not help, because, anyway, you have got enough growth and probably not much of an inflation problem. So you need to then provide targeted help to those sectors.

Q. As per the Centre’s forecast, which of the three scenarios is likely to occur, going by the trend in high-frequency data that is being monitored?

A. The game here is not to get too swayed by forecasts. This is the point I keep making. The most important thing to do is to look at what the data actually shows and not what the model forecasts. And we will have a very fair sense of where this is going in the next few weeks. Because I think, one way or the other, we will begin to go down one of the three paths I mentioned earlier.

Way too much of media discussion is based on trying to see whose forecast is better. It’s actually a pointless activity, nobody really forecast the second wave or how it happened, at least ex-ante. The same thing is true for the economy. It is far better to actually watch the data and the same goes for health. Instead of spending a great amount of time trying to forecast when a third wave will strike, the only sensible thing you can really do is to do better surveillance, continue to do tests, irrespective of cases coming down and respond to it quickly as and when they pop up. And meanwhile, keep doing vaccination.

Q. Going ahead, many experts and even industry body FICCI have asked for a temporary income support scheme for India’s poorest. Is that something the government would consider?

A. We are providing the most direct form of support, which is food security. We have provided direct transfers last year, and if it is something that is necessary, we will do it again.

Q. When we spoke to Niti Aayog Vice-Chairman Rajiv Kumar, his view was that a direct income transfer would lead to more savings rather than a consumption boost.

A. That has been the experience in many countries, including in the first round of the Jan Dhan transfers last year. Our data suggests that much of it was saved. So, if your purpose is demand support, there is adequate evidence that capital expenditure is a more efficient way.

Q. Another demand, by those on the other side of the debate, is instead of putting money in the hands of the people, you put it in the hands of MSMEs as a job support scheme for the formal and informal sectors.

A. We have provided support for companies in the organised sectors by contributing part of the provident fund for rehirings. Job support is somewhat more tricky for the unorganised sector because of lack of data.

For the organised sector, this is clearly a measure that can be done. But in the end, the aim is to boost demand generally, so that jobs get generated and the economy gets going.

The first and the most important thing is to somehow end this health situation, so that we can unlock, because without unlocking, nothing else actually matters. It's not that there isn't demand for many things, there is demand for people going on holidays or wanting leisure activities. The problem is not boosting demand. The first focus has got to be to make sure that we don't have a third wave.

And in that direction, we are doing two things. One is that we have done a dramatic acceleration of the vaccination programme. We are now vaccinating between 4-6 million people a day, occasionally spiking past that as well. Secondly, we now have heightened surveillance wherever you see too many cases popping up. State governments have become quite adept at doing shutdowns.

Q. Now that markets are doing well, isn’t this the right time to really push ahead with the planned privatisation of companies like Air India, Bharat Petroleum, a few state-owned banks and others?

A. We are very committed to this. There is no question that this government is unapologetic about pushing privatisation in non-strategic sectors. Obviously, the COVID situation did throw us off a little bit because key personnel were down with COVID but a lot of background work has got done. A lot of the background paperwork has been completed for many of the names that have been shortlisted.

Q. The Centre has a very ambitious target of vaccinating 94 crore adults by the end of the year. There is also a short-term target of touching 1 crore vaccinations a day. Given where we are with supply and daily doses, is that possible?

A. It is very important that we have managed to vaccinate very large cities. Even for rural areas, the nearby city is the likely source of the transfer of the virus. The big cities where the migrants go back and forth, that is our focus. If we can get most of those done, and even the district headquarter towns and so on, we will have achieved a lot in terms of having managed to get the infection spread contained, even in rural India.

But this is not the end of our ramping up. There may be the odd day which will be a little lower, but we are doing 4-6 million most days. From what I gather, vaccine supply is getting ramped up all the time, and new vaccines are getting through, and so on.