Third quarter contraction may be smaller than forecast, says NITI Aayog Vice Chairman

Niti Aayog vice chairman Rajiv Kumar said that Indian economy might end up with a lower contraction in current fiscal than projected by various organisations while suggesting that the next stimulus should focus on infrastructure.
“I think this third quarter we will see smaller contractions than had been forecast and the fourth quarter could well be a wash if not a small positive,” he said while speaking at the virtual 7th National Forum 22020 of the Public Affair Forum of India on Thursday.

“So if that is true then I think we might end up with a contraction, which is lower but nonetheless contraction itself is a very unprecedented thing,” he said. Kumar is upbeat about the economic recovery in August and September which he said has been broad based, quite smart and sharper

Commenting on the much anticipated stimulus, Kumar said the next stimulus should focus on short gestation infrastructure projects as it has strong multiplier effects and can sustain growth. “There are enough productivity enhancing expenditures which can be rolled out in a relatively short span,” he said.

The Reserve Bank of India has projected the Indian economy to contract 9.5% in the current fiscal while the International Monetary Fund (IMF) and World Bank estimates the contraction at 10.3% and 9.6%, respectively.

Echoing similar expectations, Uday Kotak, managing director of the Kotak Mahindra Bank said the focus of the government should be on infrastructure, healthcare, education and sustainability.

Talking about the financial implication of providing a Covid vaccine, as and when it comes, Kumar said it is too premature to comment as a lot will depend on modalities on how we go about it.

Admitting that access to credit continues to be a weakness of India's financial sector, Kumar emphasised on the need for size, specialisation, competition and risk management capacity in the financial sector.

“There is a huge potential to mobilise the financial domestic savings. However, we need to improve the efficiency of our banking sector,” he said.

Kuamr is of the view that building trust between Centre and the states as well as with existing investors will be the key going forward for India. “80% of action has shifted to states. There is a need to shift trust building to states. Unless we do that we will not be able to take off to a level we aspire to,” he concluded.