Fear of COVID-19 among the people is hurting economic activity and the government may introduce a second stimulus package only after the concerns abate, a top finance ministry official said on Tuesday. Union Expenditure Secretary T V Somanathan also said 40 per cent of the cash transferred by the government to stimulate the economy earlier has not been spent by the beneficiaries, which reflects people's desire to save due to the uncertainties.
The government's first round of fiscal stimulus included measures like extra spends of nearly 2 percentage points of GDP. The RBI delivered two deep rate cuts before surprising all with a pause this month, leading some analysts to opine that the government will have to do the heavy lifting now.
Speculation about a second round of economic stimulus has been swirling for the last few days, with some quarters feeling it will come around the upcoming festive season. Speaking at an event hosted by Dun and Bradstreet India, Somanathan said normal economic activity is in "abeyance" right now but this has nothing to do with what the government has done or not been able to do.
"Right now, the evidence is that the problem is not... Stimulation by fiscal or government measures. It's not as if people are waiting for something to be done by the government and then they are ready to go out and resume normal economic activity," he said. He cited service sector industries like cinemas, malls and restaurants to argue that it is the fear of infections which is preventing people from frequenting such places, adding that the health situation remains "very vulnerable" in some parts of the country.
"These are things that I don't think a fiscal stimulus or a diktat from the government can make people re-enter these spheres of activity. The revival will really come when the psychology of the pandemic begins to ebb," he said, hoping that it will be a reality sooner.
The government has been waiting for the health issue to abate as it feels that its policy tools and responses will not have any effect on the ground situation till people are in a state of fear, he said. However, in what can disappoint some people, Somanathan said as and when fears on the health front ebb in the minds of people, the government can help the economy "a little bit with a few measures here and there".
At present, the government is concentrating on working on the structural front so that as and when things improve, the consumption and investment cycle can kickstart and elevate economic growth, he said. The government has "bid goodbye" to the fiscal targets for FY21 as the expenditure is much higher amid a slowdown in revenues, Somanathan said, but asserted that it has not given up on its broader fiscal consolidation commitment.
Sounding optimistic, he said things will normalise from the next fiscal, once the overhang of the COVID-19 crisis disappears. "From FY22, I see revenues picking up substantially which will create ability for us to consolidate and the need for special expenditures undertaken for the pandemic will not arise next year, and thirdly if we can get the growth rate up, then we can see both revenue buoyancy and a sustainability of our debt," he said.
Somanathan said the government is "re-prioritising" expenditure right now and has a bias towards undertaking capital expenditure which has a multiplier effect. Niti Aayog CEO Amitabh Kant, who also spoke at the event, said the global supply chains will get altered "radically" wherein China's importance will go down, and India is keen to seize the same opportunity.
He also asserted that the 'Aatmanirbhar' package is not about making India "isolationist" and the aim is to create global winners. With this aim in mind, India will continue to undertake radical reforms to help India Inc, which will play an important role in the Aatmanirbhar programme, he said.