₹10-lakh-crore Stimulus can get the Economy Back to 2019-20 Growth Levels, says Pronab Sen

‘The government should take fiscal risk in the short run and increase public expenditure’

Pronab Sen, Chairman, Standing Committee on Statistics (SCES) and former Chief Statistician of India, on Wednesday said that India’s gross domestic product (GDP) could go back to 2019-20 levels if the government comes out with a stimulus package to the tune of ₹10-lakh crore.

However, if that does not happen then it could take around four-five years for the economy to bounce back to the FY20 levels.

“Strictly adhering to the norms of the FRBM Act will only make the situation worse. The government should take fiscal risk in the short run and increase public expenditure. If followed, the fiscal deficit will come down gradually from the current levels of 15 per cent to seven-to-eight per cent of GDP by 2022,” Sen said at an e-session organised by the Bharat Chamber of Commerce on Wednesday.

According to him, the Centre does not have the capacity to provide a stimulus package of more than ₹10-lakh crore.

“Even if the government had the will and intention it cannot increase its spending over and above ₹10-lakh crore as it does not have the wherewithal or capacity,” he said.

In order to get economic recovery on track, the government should also look to immediately settle all the dues pending with the industry, various States and other beneficiaries of social sector schemes.

“This is expected to take care of the demand side problems and will give a boost to consumption demand and fresh investments by the industry,” he pointed out.

Monetising deficit

Experts have been talking about the possibility of monetising deficit in the wake of the pandemic leading to revenue shortfall and pushing the government to increase its borrowing.

Monetisation of deficit essentially means printing more money. It can happen if the central bank buys government securities directly from the primary market aimed at funding the government’s expenses.

According to Sen, RBI can be allowed to do so if Parliament passes an ordinance reversing the clause in the RBI Act. “It can be done by a simple ordinance may be for a period of one year,” he said.

However, the fear is that monetisation could trigger inflation. Sen also emphasised the need for recapitalising banks so as to ensure that they do not get “choked”.