EXCLUSIVE | Surprised at RBI cutting estimates, still see double-digit growth: Niti Aayog's Rajiv Kumar

Rajiv Kumar, Vice-Chairman of the NITI Aayog

On a day when the Reserve Bank of India (RBI) cut its economic growth forecast for 2021-22, Niti Aayog Vice-Chairman Rajiv Kumar told Moneycontrol that he still believed India will achieve double-digit growth in the current financial year.

In an extensive interview on June 4, Kumar also said that a higher fiscal stimulus was needed to ‘revive the animal spirits’ of the economy, but added that direct income support to targeted beneficiaries will be counter-productive.

Click here for the full text of the interview with Rajiv Kumar

“I’m a bit surprised at RBI reducing its growth estimates, because I am of the view that as the economy comes out of the pandemic, the strength of the economic recovery will surprise all of us. And therefore, I will still hold on to the double-digit growth estimate for FY22,” Kumar said.

“You might see that in the third quarter, people who have reduced their estimates today will be revising them upwards again,” Kumar said.

The RBI, on June 4, cut its forecast of real GDP growth to 9.5 percent from 10.5 percent earlier. RBI Governor Shaktikanta Das said the economy is likely to grow at the rate of 18.5 percent in the first quarter, 7.9 per cent in the second quarter, 7.2 percent in the third quarter and 6.6 percent in the fourth quarter.

‘Income support will not lead to higher spending’

As the country comes out of a devastating second wave of COVID-19 infections and with fears of a third wave, many economists, opposition politicians, including former Finance Minister P Chidambaram, and even industry bodies like FICCI have suggested that the government should provide a substantial fiscal stimulus to the economy, and could even consider direct income support in order to kickstart demand and revive the economy.

However, Kumar, one of Prime Minister Narendra Modi’s seniormost advisors, said that a direct income support would be counter-productive.

“I contest the view of those who say that we require at this time a direct income transfer, because all that income transfer would result only in higher bank deposits, and not in higher spending on consumption, and that is what we don't need.”

He said that this was evidenced in the rising amount of bank deposits and Jan Dhan deposits. “Where is the guarantee that the helicopter money as it was dropped would result in a higher consumption and that will lead to a virtuous cycle of higher consumption, higher investment, higher growth, etc?” Kumar asked.

Kumar, however, did support the need for higher public sector spending and fiscal stimulus.

“We, at Niti Aayog, have been insisting that higher expenditure and higher fiscal stimulus are, of course, necessary to revive the animal spirits. But this higher expenditure should come in sectors which will generate large-scale employment, with large-scale backward linkages,” he said.

Kumar said that such sectors include construction, infrastructure, real estate and others.

Vaccinating the population main priority

In the Union Budget, Finance Minister Nirmala Sitharaman had set a capital expenditure target of Rs 5.54 lakh crore, and laid out a blueprint for economic revival with focus on large infrastructure projects and public sector spending.

This was, however, before the second wave. With stakeholders asking for fiscal support for the economy, Sitharaman had said last week that the budget announcements should be allowed to play out before a stimulus package can be considered.

On his part, Kumar said that ensuring speedy vaccination will be the key in reviving the economy.

“I think the biggest step that we can take and we are taking and the government is conscious about it is to ramp up our vaccination programme. As long as that's not there, as long as there is a fear of moving out, and there is a fear of interaction among consumers, whatever you do will not result in higher consumption, demand and economic activity,” he said.