India / Indian economy may contract lower in FY21 than projected: NITI Aayog VC

NEW DELHI: eThe next round of economic stimulus measures could focus on infrastructure projects which can be executed quickly and can make economic recovery sustainable, federal policy think tank NITI Aayog vice chairman Rajiv Kumar said.

Kumar said at a webinar organised by the Public Affairs Forum of India (PAFI), an advocacy platform, that the signs of economic recovery in August and September was “quite smart" and indicated that the economic contraction this fiscal may not be as bad as being thought about. He suggested that NITI Aayog is in favour of infrastructure projects being the focus of the next round of stimulus measures rather than helicopter money.

Kumar welcomed economic affairs secretary Tarun Bajaj’s statement on Wednesday that the ministry has received suggestions from various ministries on more steps needed to support the economy. Kumar said that infrastructure with a short gestation period can get off the ground and facilitate quick capital spending with a strong multiplier effect.

“What you want at the moment is not something that is one off. We are not looking at helicopter money. We are looking at stimulus which can sustain growth and give legs to the recovery. I am hoping that the ministry of finance is focused in the same direction" said Kumar.

Earlier in the week, finance minister Nirmala Sitharaman said that door was not shut on another round of stimulus. RBI governor Shaktikanta Das on Wednesday said the central bank was constantly striving to be innovative in announcing measures to boost liquidity and to aid the economic recovery in sync with the fiscal policy.

Kumar cited railway station redevelopment as one example of short gestation infrastructure project which can get off the ground quickly. Many economists have pointed to infrastructure projects as the antidote for the economic contraction on account of the multiplier effect such projects can deliver. Kumar said the government has the ability to monitor projects on a real time basis.

The RBI has projected a 9.5% contraction for FY21, which assumes the latter part of the current fiscal will make up in part for the sharp 24% contraction seen in the first quarter. “There are signs that we may have not as bad a contraction of 9.5%-10% as have been thought about for the reason that the recovery in August and September has been quite smart," said Rajiv Kumar.

He said that services sector, which was badly affected by the pandemic, was on course to recovery. The India Services Business Activity Index rose for the fifth straight month in September, from 41.8 in August to 49.8, according to IHS Markit, a provider of business information. The index was marginally below the 50 mark. A figure above this suggests growth from the previous month.

Uday Kotak, managing director and chief executive of Kotak Mahindra Bank and president of industry chamber Confederation of Indian Industry (CII) said government spending has to be increased dramatically in healthcare, education and sustainability in addition to infrastructure.