India can expect V-shaped recovery post coronavirus crisis, says former RBI governor Subbarao

Dr Duvvuri Subbarao, former governor of the Reserve Bank of India (RBI) and a veteran economist, says India can expect to see a V-shaped economic recovery post coronavirus crisis. This should allay concerns that the economic recovery post coronavirus would be an arduous task considering the economy was not in the best of health just before the pandemic hit. The GDP growth had slipped to about 4 per cent, a little above the Hindu rate of growth, the Indian economy was used to in the pre-1991 reform period. The best one could expect was a U-shaped recovery considering muted consumer demand and investment sentiment at the start of the new calendar year. But then, Dr Subbarao has good reasons why India could expect a V-shaped recovery - one where there is a sharp downturn and an equally sharp upturn.

"Most recessions have seen a V-shaped recovery except the global financial crisis of 2008. Why do I say a V-shaped recovery is possible out of this for India? I say this because this is not a natural disaster.  It is not a cyclone or a flood or an earthquake. Our infrastructure is intact and so is our transport system. Our factories are intact too. So, with the right policies, many firms can revive and engineer a V-shaped recovery," he says.

By right policies, which apparently is the key here, he means those measures that can help revive firms and enterprises, especially the SMEs (small and medium enterprises)  as quickly as possible. Now,  since banks might be wary of the credit risk, the government will have to guarantee these loans to the enterprises. This, he says, is one of the many things that needs to be done and is in favour of having these backed by the appropriate structural reforms, governance reforms and the financial sector reforms.

Dr Subbarao was delivering an online talk on Sunday, May 10, on a rather deep topic of "Challenges of the Corona Crisis - the Economic Dimensions'.

On the need for quantitative easing, a tool used by central banks to inject money supply into the economy, he says, the time for the RBI to do such has not come yet. There is still sufficient room for conventional liquidity management through purchase of government bonds. There are still a lot of government bonds that it can buy and inject liquidity.

On the debt to GDP ratio, where India stands and options before it, he feels the parameter that actually needs to be watched closely is the revenue to GDP ratio. "If your revenue to GDP ratio is low you can get into debt pressures even at a low debt to GDP ratio." Which is still low as compared to advanced economies that have a higher tax to GDP ratio and tends to be low in emerging economies with lesser numbers of people paying income tax. Overtime, as these economies grow richer and per capita income grows and the growth accelerates, one could hope for a higher revenue to GDP ratio. But then, we are not quite there, at least at the moment.

The event organizers tell Business Today that there were in all about 1,300 people from all walks of life who registered to listen to the talk and about 900 to 1,000 managed to attend. This, on a Sunday, is perhaps an indicator of the concern people have and the importance they give to what Dr Subbarao has to say.

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