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D Street hopes dashed? CEA Subramanian rules out fiscal stimulus

He emphasised on the need to pushing investment reforms along with reforms in labour laws and divestment.

August 22, 2019 / 02:54 PM IST

While the market holds its breath for the government to announce stimulus measures for the economy to rekindle the risk appetite of investors, Chief Economic Adviser (CEA) Krishnamurthy Subramanian has subtly indicated the hope may be misplaced.

Speaking at the Hero MindMine Summit 2019, Subramanian seemed to indirectly rule out the possibility of a major stimulus package when he said “have to be careful on the issue of a fiscal stimulus".

He emphasised that the government is not expected to intervene every time when some sectors go through sunset phases.

While acknowledging that some sectors are not faring well, he said some of the pessimism being seen is not called for, as some sectors are performing.

Taking a rather academic tone, Subramanian advised the industry and the markets to look at the averages and aggregates of the economy rather than focus on anecdotal evidence.


"(We) believe that there is a positive structural element in the economy," he said.

Talking about the auto sector, which has been creating strong buzz due to piling inventories and falling demand, he said the auto sector is not symptomatic of the economy and the sector is witnessing disruption due to cab aggregators and a shift in technology.

He emphasised on the need to push investment reforms along with reforms in labour laws, as well as divestment.

"We looked at countries that grew at over 5 percent for 10 years. The countries growing at 5 percent for 10 years had higher investment. We need to focus on investment reforms. Labour law reforms and divestment are areas of focus," he said.

He also stressed on the importance of an effective and strong bankruptcy code.

"Can't imagine a market economy without a bankruptcy code. Bankruptcy Code has cut NPAs by Rs 3 lakh crore. Capital budgeting has to be done carefully post-Bankruptcy Code," Subramanian said.

"Growth in India went far ahead of checks and balances of governance and without governance, you can't grow in a sustained manner," he noted.

The demand for fiscal stimulus has been gaining strong momentum of late from several sectors, in the light of the slowdown in demand and the consequent job cuts.

"While it may not be possible for the government to meet all the expectations of industry and market participants, a stimulus to the economy would go a long way in lifting investor sentiments," said Jyoti Roy, Deputy Vice President, Equity Research, of Angel Broking.
Nishant Kumar
first published: Aug 22, 2019 02:54 pm

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