Manmohan Singh says slowdown ‘inevitable’, lists three steps to revive economy

Stressing that a “deep and prolonged economic slowdown” was “inevitable” in India, former prime minister Dr Manmohan Singh on Monday spelled out three steps that the Narendra Modi-led NDA government should immediately take to stem the damage of the coronavirus pandemic.

In an e-mail interaction with the BBC, Congress leader Manmohan Singh said that economic slowdown in the country is “a humanitarian crisis” and that the “government’s shock and awe approach to the lockdown has caused tremendous pain to people.” “Perhaps a lockdown at that stage was an inevitable choice. The suddenness of the announcement and the stringency of the lockdown were thoughtless and insensitive,” Singh said.

The former prime minister also laid out three steps he believed can restore economic normalcy in the coming years. According to Singh, the government must “ensure people’s livelihoods are protected and they have spending power through significant direct cash assistance”. The Centre must also make adequate capital available for businesses through “government-backed credit guarantee programmes”. Lastly, Singh said, the government should fix the financial sector through “institutional autonomy and processes.”

Talking about direct cash transfers, Manmohan Singh said “high borrowing” is inevitable. He acknowledged that it would increase India’s debt to GDP ratio, but if borrowing “can save lives, borders, restore livelihoods and boost economic growth, then its worth it”, he said. “We must not be shy of borrowing but we must be prudent on how we use that borrowing,” the BBC quoted Singh as saying.

Dr Manmohan Singh also warned against India following some other nations in becoming more protectionist – imposing high trade barriers duties on imports. India’s trade policy over the last three decades had brought “enormous economic gains to not just the top but across all sections of our population”, he said. “I do not want to use words like ‘depression’ in a cavalier fashion,” Dr Singh said, but a “deep and prolonged economic slowdown” was “inevitable”.

The Indian economy was already struggling to grow before Covid. The GDP grew at 4.2% in 2019-20, its slowest pace in nearly a decade. Many economists have formed a consensus over an economic contraction in India in nominal terms, “which if it happens, will be the first time in independent India,” Singh said.

“I hope the consensus is wrong,” he added.

The country is now gradually unlocking its economy after a prolonged lockdown. Finance Minister Nirmala Sitharaman had announced Rs 20 lakh crore package to cushion the impact of the pandemic on the economy.