Dr C Rangarajan, Chancellor of The ICFAI Foundation for Higher Education, Hyderabad and former Chairman, Prime Minister’s Economic Advisory Council, on Friday said that there is a need to go back to high growth in 2022 and the top three focus areas for government to spend would be healthcare, relief for poor, and stimulation to restart businesses.
“Due to Covid-19, the economy has lost two years — one in decline and another to cope up with the decline and there is a need to go back to high growth in 2022,” Rangarajan said while delivering a lecture on “Growth and Policy Coordination in the context of Covid-19 on Friday.
According to him, the world was going through an economic crisis triggered by a non-economic factor and the impact of Covid-19 can be seen in terms of human tragedy and economic loss. While India fared better than many developed economies in terms of number of deaths per lakh of population, some developing countries performed better than India.
Setting priorities
When the economic impact is considered, there was huge loss in output, which was due to the lockdown and restrictions imposed to contain the spread of Covid. While domestic demand was weak, exports grew in the first half of 2021-22, compared to the previous years.
While financial markets were expected to be adversely impacted, it did not happen, and the finance market continued to boom and touched new highs. Talking about the impact of the pandemic on different sectors, he said that while hospitality sector suffered, agriculture did well.
Te government initiated both monetary and fiscal policy measures to help improve money supply and liquidity in the system. The monetary policy measures included reducing interest rates, providing credit, and improving liquidity of banks, NBFCs and others, in order to make credit available. The government also came up with moratorium, to help the borrowers tide over the crisis. By December 2021, the reserve money, money supply and credit have all increased. However, he cautioned that this might lead to too much liquidity and inflation could increase.
On the fiscal policy front, he said that government should expand expenditures in three categories. Healthcare — for vaccines, oxygen supply, ventilators, improving hospitals; providing relief to the vulnerable poor — direct cash and cash relief to the poor; stimulation expenses — support to restart businesses, credit guarantee to commercial banks to support MSMEs.
Growth projections
According to Rangarajan, the economy which was back on track was taken aback by the second wave. To achieve the growth of 9.5 per cent projected by the IMF as well as RBI, the country needs to achieve growth of 6.8 per cent in the second half of the year 2021-22, after growth of 13.7 per cent in the first half. He further added that in the second half of the year there would be no base advantage and government expenditures are warranted in a big way to stimulate this growth.
“Though it looks achievable, uncertainty about the new variant of virus Omicron prevails. It is necessary to see to it that preventive measures are fully in place to mitigate threat from the virus and move the economy on to higher growth path,” he said.
In his opening remarks, Dr J Mahender Reddy, Vice-Chancellor, ICFAI University pointed out that some sectors of the country’s economy have been more severely affected than others. This has raised important questions pertaining to rising inequality within the system.
The lecture was attended by more than 850 participants including eminent personalities such as Prof R Vaidyanathan, IIM Bangalore, Chairperson of ICFAI Society, Shobha Rani Yasaswy, government officials, students, economists, professors, research scholars among others.