Former chief economic adviser Arvind Subramanian on April 15 said the GDP numbers being projected by the World Bank and the International Monetary Fund (IMF) for India are far "too optimistic" and the country would require additional expenditure of Rs 10 lakh crore to bring the coronavirus-hit economy back on track.
As per the World Bank's latest assessment, India is expected to grow 1.5 per cent to 2.8 per cent during the current fiscal due to the impact of the COVID-19 pandemic and consequent lockdown.
Similarly, the IMF on April 14 projected a GDP growth of 1.9 per cent for India in 2020, as the global economy hits the worst recession since the Great Depression in the 1930s. With these subdued projections, India is likely to record its worst growth performance since the 1991 liberalisation of the economy.
"The number given by the World Bank and IMF in terms of the changes are way too optimistic because even if we lose one month's output, we are talking about pretty negative rate of growth and that is what should determine how we respond," Subramanian said in a webinar organised by economic think-tank NCAER.
"We are going to experience a sharp collapse in output for one month. We have to spend 2 per cent on medical side which is slightly underestimated... For one month output loss even if we make up one-third of output loss by social cushioning or propping up financial system, still it would be 3 per cent of GDP. So the number we came up with Rs 10 lakh crore (Centre and states combined) or 5 per cent of the GDP," he said.
Because the economy is going to slow down, revenue collection for this year would be much less than the last year, he said, adding the revenue loss would be 1.5 per of the GDP.
Subramanian recommended five ways of financing additional expenditure over a period of one year, including cutting expenditure and borrowing directly from the RBI or monetising debt.
He said Rs 1-1.5 lakh crore could be mobilised by cutting expenditure, while another Rs 1-1.5 lakh crore could be raised from multilateral institutions and NRIs. RBI could print about Rs 1.5-2 lakh crore and borrowing through issuance of bonds could be in the range of Rs 4-5 lakh crore, he said.
He also pitched for setting up a 'Solidarity Fund' where the 'haves' will pool in money for supporting the 'have-nots'. This could garner about Rs 1 lakh crore. "The government should consider a Solidarity Fund with a one-time annual contribution coming from the wealthy and the employees in the organised sector.
"This contribution can take the form of taxes or elimination of middle-class subsidies identified in the Economic Survey of 2016. The wealthy could contribute via a wealth tax with thresholds set by property values say above Rs 5 crore," he said.
Salaried employees in the public and private sectors could contribute via a small, progressive tax on salaries and pensions, he said, adding middle class subsidies that could be eliminated include interest and tax deductions for small savers, favourable taxation of gold and other luxuries.
Wealth taxes and elimination of subsidies for the rich should in any event be part of the long-run reform agenda to reduce growing inequality, he said.He also said that the government should relax the borrowing norms for the states as this is an extraordinary situation which calls for extraordinary responses.