Mr Ninad Karpe

: - Good Afternoon, Everyone! Thank you for joining this live 20-minutes session. I am delighted that Ajit is our first guest. We have a new format in which Ajit will speak for 10 minutes and we will have a Q&A for 10 minutes. The idea is to provide as much information as is relevant to the topic. The theme is ‘What Next’ and we couldn’t have gotten anyone better than Ajit Ranade. Ajit is the Chief Economist of Aditya Birla Group. He is a columnist in Mumbai Mirror. He has written in many papers. He has presented in many seminars nationally and globally. He is sought after by policy-makers and many industrialists. I have requested him to speak out about the immediate future of the Indian Economy. If you have any questions, please drop them in the box. After 10 minutes, I will ask him the questions. Over to you, Ajit, 10 minutes’ comments and remarks.

• Thank you and congratulations on this new initiative! You have promised your participants 20 exciting minutes but these 20 exciting minutes are in the middle of pretty grim 12 months, optimistically. We are living in very strange and unprecedented times. Who would have imagined that the price of oil would go down to -37 dollars? Who would have imagined that we are in the middle of a global pandemic? But, the pandemic has not affected the usual suspects of backward countries like African countries or even India and South-East Asian nations. The epicentre seems to be developed countries.

2: 55 - Due to the nationwide lockdown, India faced supply as well as demand shocks. Supply shock was primarily due to the shutdown of 3/4th of the economy. The supply chain and logistics are hit. The demand shock was due to steep decline in demand not only in airlines, hospitality, tourism sectors etc but also in a lot of discretionary items because the consumers have become anxious and apprehensive about their own future, income supply, jobs. But, apart from demand and supply shocks, the nation also faced a financial shock. The destruction in the value of wealth in stock markets. But if you think that the markets are forward looking indicators from the bottom, they have reached up to 15% within the last couple of weeks. They can be notoriously fatal and they can change their views.

5: 09 - The Government, along with the RBI who will be a junior partner in this, will have a major role to play in saving the plummeting economy. The RBI will not be leading this unlike the Global Financial Crisis of 2008 and 2009. There will be a desperate need for fiscal and monetary stimulus.

6:25 - It could be careful about exploiting its authority of minting money since the act could unleash inflation because printing money could be inflationary. Secondly, the Government could opt for borrowing from financial markets. But, it could result in excessive spending and could put upward pressure on the inter-states. Another reason is excessive spending could destabilize the Indian currency. The exchange rate may deteriorate further. Lastly, India’s country rating among international investors may suffer. Even though the above reasons are legitimate and noteworthy, they are benign.

7:45 - Economic inflation is not a major threat at this stage for the country. Concerns like low-interest rates and slipping currency are not major issues. The currency value is worried about usually because India imports crude oil on a large scale. The crude oil crisis has plunged towards a new low.

8:42 - The Government needs to offer a fiscal package of at least 3-4% of GDP which is roughly 800,000 crores.

11:28 - The consumer goods sector is facing slow-down because 50% of the consumer goods are produced in the Covid Red Zones. So, the FMCG sector is looking stagnant for a few months due to the lockdown. The nationwide lockdown is not expected to be lifted immediately. It will be done progressively and with restrictions. The restoration of this sector could be slow and time-consuming.

The India-China trade relationship has always been dynamic and asymmetric. But, it has grown around 40 times in the last 20 years. It has surged from 2 billion dollars in 2001 to 100 billion dollars in 2020. The trade deficit in India can be fulfilled from China on the capital side. China sits on 3 trillion dollars of foreign exchange. It is exposed mostly to US treasury bonds or European bonds and if even 1% comes to India in sectors like infrastructure, then it would nullify the bilateral trade deficit. Apart from this, China has announced an Import Expo. They have pledged to import 15 trillion dollars of goods and services. Indian SMEs could digitally tap in it and benefit. 

India has 63 million MSMEs. The consequences suffered by MSMEs are due to working capital scarcity due to delayed payments. The Government should introduce a blanket scheme across all sectors of providing working capital to MSMEs. In fact, the Government has a system in place to provide aid to MSMEs via targeted LTRO (Long Term Repo Operations). It focuses on providing funding to SMEs. Innovation could be used in this area of lending. The GST data could be used in examining the financial credibility of the vendors and not merely assets and liabilities. One more fiscal stimulus that can be recommended is across the board cut in GST, down to 12%. So there will be just two rates - 5% and 12%.