Slowdown bites hard, CEA prefers rate cuts to bailout

NEW DELHI:As economic slowdown enters the consumer goods sector after engulfing the automobile and real estate segments, Chief Economic Adviser K V Subramanian said here today that monetary tools, such as interest rate cuts and hike in credit availability, should be the preferred options rather than giving a bailout package to the industry.

Tribune News Service

New Delhi, August 22

As economic slowdown enters the consumer goods sector after engulfing the automobile and real estate segments, Chief Economic Adviser K V Subramanian said here today that monetary tools, such as interest rate cuts and hike in credit availability, should be the preferred options rather than giving a bailout package to the industry. Similar views were expressed by Power Secretary Subhash Chandra Garg who, till last month, was former Finance Secretary.

Leading biscuit-maker Britannia has been vocal about the decline in consumption that has triggered a slowdown in economic growth. Its competitors Parle, Patanjali and Hindustan Unilever have also been hit hard. Unilever has come out with a cautious statement, pointing out that the fast-moving capital goods (FMCG) industry is “recession-resistant, not recession-proof.”

Non-banking finance companies (NBFCs) too are in trouble with reports of more impending defaults in addition to the ones publicly acknowledged by DLFS and IL&FS. The liquidity crunch faced by NBFCs has passed on to medium and small industries, leading to joblessness and a drag on the GDP growth figures.

Ten days ago, the government had flagged off a scheme to enable public sector banks purchase pooled assets of financially sound NBFCs totalling Rs 1 lakh crore.

This infusion of liquidity would enable NBFCs to provide credit to the sectors in trouble. However, the government seems inclined to reject the industry’s demand for a fiscal stimulus of Rs 1 lakh crore made to Finance Miniser Nirmala Sitharaman during her pre-Independence Day interactions with several sectors.

“If we basically expect the government to use taxpayers’ money to intervene every time when there are some ‘sunsets,’ then I think you introduce possible moral hazards as well as the possibility of a situation where profits are private and losses are socialised, which is basically an anathema to the way the market economy functions,’’ said the CEA at a function here.

Power Secretary Subhash Chandra Garg foresaw lower GDP numbers for the April-June quarter, which he felt was not due to an economic slowdown but because the gvernment had taken its eye off the economy during the extended poll season.