Lessons from the second wave will help India fight the new variant, Chief Economic Advisor K V Subramanian has said. In an interview with BusinessLine , he also expressed confidence that repealing the farm laws would not affect the overall reform process. Excerpts:

How will the new Covid-19 variant affect growth projections?

First, as I said on Tuesday, growth in the first half of this fiscal has been 13.7 per cent. So a little over 6 per cent now will deliver an overall double digit growth number.

Second, I saw a tweet by Kiran Mazumdar-Shaw where she said that during the second wave, we did not have as large a vaccinated population and that did have an impact. From the tweet, and considering some other evidence, I think it’s clear that the vaccination numbers are there and — while the intensity of immunity may vary between the variants — protection will remain. 90 per cent of the population has received one dose now. It is also clear that even one dose provides immunity and reduces hospitalisation numbers. I do think that vaccination has become a sort of envelope of protection. Nevertheless, vaccinated individuals must definitely get back to following all Covid protocols and guidelines that are being put out by the Health Ministry.

So, on the health side, I think the protection provided by vaccines will help.

As for the economy, during the second wave, we learnt to manage the trade off between lives and livelihoods in a balanced manner. Restrictions were all enforced at the State level and those too in a calibrated manner. I think those learnings will serve us very well.

Post GDP announcement, we have two high frequency indicators — GDP collection at ₹1.31-lakh crore plus and PMI manufacturing at 57.6 — supporting the optimism. Still, there are views that recovery is slightly patchy at this moment. What do you have to say?

On the manufacturing side, over the 2015 to 2019 period, our CAGR has actually been higher than that of China. And that had not happened in the previous five-year period. So clearly, after a blip during the pandemic, growth in manufacturing will continue. Manufacturing PMI is at a 10-month high now. It has been in an expansionary phase since September 2020 except for one month during the second wave.

When you put it together with the fact that the core sector has also grown at 7.5 per cent and the GST number which reflects consumption, I think that is something good.

On the services side, we have had double-digit growth for two quarters now. But the sector is still below pre-pandemic levels. There is scope for improvement there, especially in travel tourism which is yet to reach pre-pandemic levels. The way I look at it, service sector activity generates earnings which get used in other sectors.

So, as vaccination proceeds and the service sector grows, I think it will return to pre-pandemic levels and then go beyond to help push consumption as well. We do have to watch for the variant and not drop our guard but as long as another wave doesn’t occur, this recovery should continue and gather momentum.

The farm sector has recorded an impressive growth of 4.5 per cent. Now, with the repeal of the three farm laws, do you anticipate roadblocks to reforms in this sector?

In any democracy, policies have to take into account the political economy. It is a fact that in every democracy, farming and agriculture are an emotive issue.

Last year, when some of the protests were happening and people like Greta Thunberg tweeted the toolkit, I had written in an article that there were farmers in Germany who were blocking highways with their tractors. Years ago, farmers in France had also done a similar thing. We have to recognise that emotions run high in the farming sector in any democracy.

But I do not think that this will have an impact on reforms in other areas because these kinds of emotions do not manifest there.

During your tenure, you have always maintained that you will not comment on monetary policy. Since this is your last interview as CEA, can you comment on what the monetary stance should be and the advice you would give to the MPC?

The stance of the government has been implementing fiscal policy by taking into account the dynamic ways in which policy — both fiscal and monetary — manifest in the real world.

By pushing on the supply side, we have helped ensure that inflation remains under control despite lock downs and night curfews. Almost half of retail inflation in India comes from food inflation. Recent prints have been less than 5 per cent and, if you would recall, 3-4 months ago, I had predicted this — that after the second wave, inflation would go down.

I expect inflation to be range-bound going forward and because fiscal policy has been so focused on capital expenditure, that expands focus on supply side reforms as well, thereby providing conditions for supply side responses.

The other point I will mention is that the formal sector, which accounts for a significant share of activities, has not suffered from any hysteresis. Therefore, as demand comes back, it will be ready to respond with greater supply as well. This again provides conditions to keep the current inflation range-bound.

What are three key policy prescriptions you would suggest and what advice do you have for your successor?

Over the last three years, we have collectively been able to establish that India needs to think for itself instead of copy-pasting what advanced economies do, whether it be by providing the commanding heights of the economy to the private sector or by recognising that ethical wealth creation has been a part of our DNA. The lead editorial by BusinessLine following the PM’s address was along those lines as well. That is one instance where India has actually recognised its strength. Similarly, on fiscal policy, India has recognised that opportunities for creating infrastructure in an emerging economy like ours are much, much more than opportunities in advanced economies. Fiscal policy has to be responsive to that and not just follow the prescriptions of advanced economies.

When it comes to the Covid crisis, we must continue having both the self confidence and the courage of conviction to think of an issue and implement our solutions ourselves. The push to bring competitiveness to factor markets is something that is quite important because only by taking care of the structural factors that impact the productivity competitiveness of our enterprises can we empower them to be Aatmanirbhar. That is the second aspect that I would highlight.

And finally, I would wish my successor good luck. I don’t think any previous CEA has had to live through such a tumultuous time and I hope that he or she performs in a time when the shocks from the global economy are positive.

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