Pick-up in Discretionary Spending unlikely as long as Covid Uncertainty Persists, says CEA

· Cash Transfers won’t help as Money will be Used only to Purchase Essential Items

Demand for discretionary items is unlikely to pick up as long as the “uncertainty over the pandemic” persists and there is no vaccine against the virus, said Krishnamuthy V Subramanian, Chief Economic Advisor.

According to him, even if the government (Centre) put cash in the hands of people — as has been the suggestion across a section of economists and Opposition leaders — it is unlikely to lead to any major uptick in demand for discretionary items or result in a push towards discretionary spending. The money will be used to purchase “essential items primarily” or build up a contingency fund.

“Until there is uncertainty over the pandemic and there is no vaccine, it is very unlikely that there will be an increase towards discretionary spending. Cash transfers will have no meaning as most of it will go towards purchase of essentials or kept aside as an exigency. It is unlikely to be used as discretionary spends,” Subramanian said, during a webinar on “Economic Recovery in the Covid era” organised by the MCCI.

He cited the instance of the US where, despite cheques being given as a part of the economic stimulus package, there has not been a significant increase in purchase of durables. Spending has mostly been concentrated on food.

Had the slowdown been caused due to economic reasons, then cash transfers could have been a solution to shore up demand. However, when the slowdown is because of health reasons, such action will have little impact.

A mixture of measures

Subramanian reasoned that the stimulus package unveiled by India was a mixture of fiscal, liquidity, monetary and other measures. This was at par with what most nations like the UK has announced.

What made it unique was the stress in bringing in or pushing ahead reforms across sectors like agriculture, labour laws, and opening up of new markets.

“Take the instance of the UK. They announced a fiscal stimulus that was 15 per cent of their GDP. However, of that, only 3.5 per cent of their GDP was fiscal measures. The remaining was other ones like extension of loans, and so on,” he said.