Economic package may be a sedative, not a stimulus, says Swaminathan Aiyar

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Economic package may be a sedative, not a stimulus, says Swaminathan Aiyar

While speaking about the financial slowdown and the relief package given by govt, Swaminathan Aiyar said that "we are facing an economic collapse and GDP is likely to fall 3% to 5%"
New Delhi: While speaking about the economic stimulus package that was unveiled by Union Finance Minister Nirmala Sitharaman in several tranches, Swaminathan Aiyar, Consulting Editor, ET Now said that "economic package may be a sedative, not a stimulus."

He said that "This will not back demand. A stimulus package is something that will increase the GDP. As per Pronab Sen’s latest GDP forecast, GDP will fall 9 per cent. I mean...I wouldn’t say that much, maybe it will fall 3-5 per cent. But whatever is happening, we are facing economic collapse."

He said that the package might at best called a sedative and "Might say that when the patient is crashing, I am trying to ease the pain a little."

"Aggregate demand is collapsing even at the time when supply itself is collapsing because the lockdowns have interrupted all kinds of production chains. So I would say the outlook is very grim. I am glad that Modi has seized this opportunity to try and push through long-term structural reforms which the country badly needs and I am glad that he is not wasting a crisis but if you ask me what is going to happen in the rest of this financial year, this financial year may be one of the worst in Indian economic history," he said.

On being asked that as a percentage of the GDP, only 1.2-1.3 per cent is being spent. And, given that 60 per cent of the Indian economy is a consumer-driven economy and not China which is an investment-driven economy. Aiyar said, "Exactly. You are echoing in fact my sentiments that the government should have gone for a much larger spending package."

"Sending money directly out which could be spent to sustain and improve the economy. Because it has not done so, the recession is going to be much deeper than otherwise. So we are taking a big hit in the current financial year; much bigger than what it needs to be. I think partly it is out of fear of a downgrade that I would have taken the risk of," he added.

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