Axis Bank: Government must spend faster, not more: Saugata Bhattacharya, Axis Bank


Mythili Bhusnurmath, Consultant Editor, ET NOW, chat with Saugata Bhattacharya, economist, Axis Bank and Anil razdan, former secretary in power on the probable economic stimulus measures envisaged by the government.

Edited excerpts:

What do you expect from the Prime Minister today?

Saugata Bhattacharya: It’s anticipating everything that happens. I am a little encouraged by the comments of the Minister of Finance on Friday that they seek a balance between the need for fiscal stimulus and the need to maintain fiscal prudence. My question is to know what the objective of this stimulus program is. As we know, there has been a supply shock in the last couple of quarters due to both demonetization and the GST.

But before that, if you look at the GDP data, you will see that there has been significant weakness in demand over the past two or three years. Rather, I feel like I’m putting together a new expenditure of money which is essentially a transfer from one group of people to another group of people without really understanding how growth multipliers will be affected by such a move and trying to To weaken the very strong move towards fiscal consolidation that the government has announced over the past two years, the immediate thing that needs to be done now is to step up the speed of spending.

Second, unblock some of the supply bottlenecks that seem to have arisen in particular with the advent of the GST. These are the two things I think the government needs to focus on. The ability of the system to absorb larger budgeted government spending and ensure that over the next couple of months some of the hurdles, the issues we saw, the GST filing, refunds, credits, etc., are set.

But the two measures you have suggested will take some time to materialize. Isn’t there a reason for some sort of quick help right away to give us an immediate boost in the economy because the economy seems to be in dire straits. All the measures you have suggested are certainly achievable, but in the medium term. Is there a reason to do something now?

Saugata Bhattacharya: No I totally agree with you that there is a slowdown. Without a doubt, over the past two quarters there have been signs of slowing down. Something must be done to stop the slowdown. This does not continue into the second trimester. Unfortunately, from the signals we are seeing, there appears to be some success even in the second quarter.

Anyway, now we have to make sure that things do not fall further, do not continue further in the third quarter. What should we do so that the government can designate additional spending ?, I certainly think they should accelerate spending on affordable housing, on rural roads, on the Pradhan Mantri Awas Yojana for example. Rail spending must be accelerated. We had just heard about its revival in the electricity sector. If you’ve seen the latest, the capital expenditure spacing update that the Reserve Bank of India publishes every year already in FY 2017, we have seen that there has been an increase sanctions in the electricity sector. There is a desperate need to fix some issues in the Power Discom segment, for example.

While all of this is unlikely to have an immediate impact, my biggest concern right now comes from all we hear that exports were expected to be a major growth driver this year in the fiscal year. 2018, but that momentum seems to have stopped. Figures from April to July show that capital spending and revenue spending in FY18 was much lower than the equivalent spending in FY17, even for states.

This is in part due to the uncertainty that the structure of the GST has created and these are the specific areas to focus on to open up budgeted spending. You don’t have to spend more. Whatever expenses have been changed, I think those expenses need to be opened. All the procedural issues facing many segments of the production company, production and ecosystem, must be unblocked. This is more important than trying to spend more, because when budgets are already not being met, it sends other signals that may need to be avoided at this point and depending on the dynamics between tax policies. , monetary, trade industry, labor — parts of all of these policies need to be quickly eased.

Should we really be allocating more to the electricity sector? Is it a government that has already made very big promises to electrify all of India, it has not yet achieved all of its objectives?

Anil razdan: I think the electrification of all of India has been a logical target of successive governments. The task is not very easy due to the remoteness of some areas and the affordability of electricity for some of the economically poor households. But now I think as renewable sources become more stable, more reliable and cheaper, the connectivity of remote villages will become a more feasible exercise.

Second, with connectivity to various towns, cities and towns having increased over the past few years, we should be closer to the target, but while we are doing this there has to be an appropriate mechanism for collecting those charges. Either you opt for a prepaid mode of payment capacity for electricity as you have done in the telecommunications sector, or you have a foolproof mechanism whereby distribution companies do not incur additional losses. But luckily, when it comes to the availability of energy in the system, we have enough power.

We had seen the pressure that had been exerted by the electricity sector on government coffers. Not so long ago, the discoms had to be bailed out. The current finance minister wanted to continue providing electricity below cost and we now understand that the project the government is working on may involve something similar; subsidized transformers, subsidized wires, subsidized meters, it will be called Saubhagya. So again, maybe as the 2019 election approaches, the government is looking at populism?

Saugata Bhattacharya: Not really. There have been measures, incentives to extend the reach of electricity. I think electricity in many rural households is a very powerful multiplier of economic activity. Remember that so far, if the villages are electrified, there is a pole that brings electricity to the village but the houses do not receive the proper electricity, if at all.

As soon as a rural household, hitherto relatively devoid of electrical connections, actually obtains electricity, which immediately leads to a demand for a significant amount of durable consumer goods, perhaps not as high end as in urban centers, but small televisions, pressure cookers etc which can use the other burners, some basic electrical equipment.

It immediately stimulates rural demand and that is a very powerful segment, a very powerful driver. So far we have said that rural demand is the key, the only demand driver in the system. This potentially has the potential to provide a good, great multiplier for economic activity, so remember that.

Anyway, even with subsidized meters, if they can install meters that correct some of the losses, it can provide electricity much more efficiently and save money for discos, if they are. well done, if they are well done.


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