Nearly two weeks after industry leaders met Finance Minister Nirmala Sitharaman, seeking a stimulus package to boost the slowing Indian economy, the chief economic adviser spoke against the measure.
Krishnamurthy Subramanian, while speaking at the Mindmine Summit in Delhi today, said sectors go through “sunrise” and “sunset” phases in a market-driven economy. Using taxpayers' money to intervene when sectors face stress, he said, is a moral hazard where “profits are private and losses are socialised”.
Economic growth, according to a Nomura report released this week, is set to slow further to 5.7 percent in the quarter ended June. The economic stress has been highlighted by multiple indicators like reduced auto sales and consumer goods volumes. That has hit hiring, with only the services sector showing growth on that parameter, according to a survey by CARE Ratings.
Subramanian, however, said it isn't precise to assume the situation in the automobile sector—which is battling its worst decline in a decade—is symptomatic of an economic slowdown.
In a market economy, focus on economic growth requires adhering to some key principles: i. easing structural constraints ii. directing resources to best use iii. reallocation of resources from hands that manage them poorly managing to better ones. Need to stay steadfast on them.
Speaking separately at the same summit, Niti Aayog Vice Chairman Rajiv Kumar said the Indian financial sector is in “an unprecedented situation where the entire system is under threat”.
“In the last 70 years nobody had faced this sort of situation where entire financial system is under threat and nobody is trusting anybody else,” Kumar said. He said that within the private sector nobody is ready to lend and is sitting on cash.
Non-bank lenders and housing financiers, which control a quarter of the credit market, have been under stress following a credit crunch due to a debt crisis at Infrastructure Leasing & Financial Services Ltd. in September last year.
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