Once the economic data starts coming out and we understand the gravity of the situation, we may need to reassess and possibly support the economy at a later point, says SK Ghosh, Group CEA.
What is your take on what has been said and assumed but today certified by the RBI Governor that India will have a negative growth this year? He, of course, stopped short of quantifying it because no one knows what is coming up ahead. How bad do you see the signs?
We need to understand that we are in unprecedented times this year. We have been in the lockdown for a longer time in the first quarter compared with the March quarter and the current trend suggests that June would not be that good. So, possibly, you lose three months of GDP data. Out of 12 months, if you lose three months of GDP data, obviously, there is going to be a contraction. How big is the contraction – that is the point.
In our sense, the contraction is going to be deep and protracted. The current crisis will be completely different from the earlier crisis because in this one you have an impact on social consumption, basically the service sector of India which has a 60% share. And these sectors actually will need support, be it government support or fiscal support.
What the RBI has done is that it has used discretion in monetary policy and it did not go the textbook way of rate cutting. That is a most welcome part. The direct impact of the fiscal policy is limited to 1% of GDP. Right now we may not possibly understand the gravity of the situation as there is no data which is coming out. You can see a significant deceleration in the fourth quarter GDP number which could slide to maybe around 1% or so. Once that data starts coming out and you understand the gravity of the situation, then we may need to reassess and possibly support the economy at a later point in time.