India a resilient economy and society, can respond with strong measures when needed: Principal Economic Adviser

India's Finance Minister (FM) on March 26 announced relief package for the informal sector and the next day the country's central bank - the Reserve Bank of India (RBI) took care of the formal sector with a multitude of steps including a 3-month moratorium on long term loans and a 75 basis points (bps) cut in the repo rate.

The thing that we would like to signal to market is that India is a resilient economy and a resilient society which can respond with strong measures when necessary. That is the key message we want to send out, is the word coming in from India's Principal Economic Adviser Sanjeev Sanyal.

Throwing more light on various decisions and steps taken by the government and the country's central back in an effort to combat the coronavirus impact, he said, “We have taken a somewhat step-by-step approach. Many other governments have preferred to go for a bigger comprehensive plan, big bang kind of approach to dealing with this. It may work in their circumstances but we have taken a completely different approach. The first, and obvious step was to take into account the human aspect of this epidemic. Therefore, we first did a 'Janata Curfew' and then shortly thereafter we introduced the 21-days lockdown."

"The next thing that we figured out that the economy was going to be hit but the most immediate thing that we discovered was that given that it happened to be the end of the financial year, there were a large number of deadlines that were coming up. So the honourable FM pushed back most of the deadlines back to June 30," he said, adding that then we had to make sure that the poorest of the poor are taken care of so that they can manage through a period of disruption. So, we physically arranged for food for them, then cooking gas, some cash.

"We also recognized that the economy and the cashflows in the system were getting gridlocked. So a comprehensive package was put together and today the governor of the RBI announced the measures – bringing down interest rates, injecting a large amount of liquidity, put some sort of a moratorium for debt repayment to keep the system functioning," said Sanyal in an interview with CNBC-TV18.

When asked whether new rules would keep coming from the RBI, he said, we have made it adequately clear that we would do what was necessary, so we will watch the things as they evolve.

"As I said in the beginning please see this as a feedback loop and react approach. The idea is not to presume exactly how things will evolve because we don’t really know. This is an evolving situation, even if we bring everything under control inside India, we have no idea what will happen in the rest of the world. Then there are other things in the game as well like like oil prices and many other things. We have gone for an approach where we act systematically, we observe what happens and whatever is the reasonable ask at any point in time given various scenarios that could pan out, we take the best possible step.”

Responding to a question of whether the world is heading towards recession, he mentioned, “I am not in the business of trying to predict where this will go. None of the organisations who have given these very deterministic predictions predicted this pandemic, so I am not going to take them particularly seriously. All that we can tell at this juncture is that there has been a very significant disruption of global economy, rather than spend time trying to split hairs about exactly what the number is, the moment is now to watch what is happening and respond firmly.”

“If necessary it may be fiscal steps, there are other steps that can also be taken, it doesn’t have to be only fiscal steps. So we will take what necessarily is to be done. RBI has also hinted that if necessary, more monetary or regulatory steps maybe taken," he said, adding that we remain ready to do what is necessary.

"The thing that I am trying to emphasize over and over again is that

we are not holding our breath trying to predict precisely where this is going. What we are trying to do is systematically watching what is happening, working out the likely paths through which this could possibly go and then responding to it. So this is more about emphasizing situational awareness rather than predictability,” he said.

“The views of the RBI and the finance ministry are not divergent,” he added.

When asked if Q4 gross domestic product (GDP) numbers would be flat or contract, he replied, “There will certainly be an impact on this quarter if several days during a critical month are disrupted. So there will be some impact, no doubt. However, as I said, I am not focusing on putting numbers down. We are now focusing on responding on an evolving situation.”