Opinion | CEA KV Subramanian vs former CEA Arvind Subramanian
Former CEA Arvind Subramanian said India is passing through a 'great slowdown' and seems headed for the 'intensive care unit'. The economy was suffering a 2nd wave of the so-called Twin Balance Sheet problem
Just a few days ago, chief economic adviser (CEA) K.V. Subramanian sought to reassure us that the economy was on the mend. But if his predecessor's views are to be believed, that may not be the case. Former CEA Arvind Subramanian, in a working paper co-authored with the former head of the International Monetary Fund's India office Josh Felman, has said that India is passing through a "great slowdown" and seems headed for the "intensive care unit". The economy was suffering a second wave of the so-called Twin Balance Sheet problem, he said, this one marked by bad real estate loans after India’s own housing bubble burst, with knock-on effects on shadow banking that left this sector starved of finance and created a wider crisis in credit markets.
Clearly, lending in some parts of the economy has ground to gasp-inducing lows, though how exactly this crunch could be traced back to demonetization, as the former CEA seems to do, is sure to be contested and put to further academic inquiry. It is also likely that this slowdown is indeed extraordinary, to the extent that shocks may have played a larger role than admitted by analysts given to treating it as a chiefly cyclical phenomenon.
While we examine its causes, what’s critical is that the government has begun to display some urgency in addressing it. Efforts to revive both investment and consumer demand have been made, and a long-held position on fiscal control may end up being sacrificed to impart a significantly large boost. The effects of this over the years are not easy to foresee, and the risks involved need to be weighed carefully, lest the economy gets even harder to rescue should a spending splurge go wrong. What is evident is that for the economy to regain its mojo, action must soon be taken, and it must be consistent with a clear economic vision.
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First Published:15 Dec 2019, 05:02 PM IST
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