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.