Economic slowdown is real, not just technical, says SBI Research

Noting that the economy has been on a downslide since September 2016, SBI Research today said the slowdown is real and not technical and called for more public spending to arrest the slide. “We certainly believe that we are in a slowdown mode since September 2016 and a slowdown that has been prolonged to Q1 of this fiscal year is technically not short-term in nature or even transient,” SBI Research said in a report. The report said continuing slowdown has “raised the specter of whether the slowdown is temporary or not” but stopped short of answering the question.

The note comes days after BJP president Amit Shah attributed the slowdown — GDP growth slid for the sixth quarter in a row to hit a three-year low at 5.7 percent in the June quarter– to “technical reasons” without elaborating on the same. Shah had said growth had gone up to 7.1 percent after falling to 4.7 percent in FY14 when the UPA was in power. The report advocated upping of spends by the government as a solution to the problem at hand. “Need of the hour is to spend to grow more,” it said.

“We believe the government should consciously expand spending and fiscal deficit, without disturbing the borrowing maths,” the report said. It can be noted that in the past, such moves by the government were termed as “fiscal profligacy” by rating agencies, which had also threatened to downgrade the country’s rating to junk if the Centre continued with such policies. The report admitted that after the 2008 global credit crisis, there was a surge in spending, but was unequivocal in not paying much heed to the rating agencies.

“Let’s not chase the rating upgrade mirage. India has had a solitary net rating upgrade in the last 25 years. The economy is in urgent need of a fiscal push now to shore up growth,” the report said. The government can use a clause in the Fiscal Responsibility and Budget Management Act that provides for a 0.5 percent slip in fiscal deficit targets, it said.

Elaborating on how to keep the net borrowings in check, like the way the government has done in the current fiscal at Rs 3.4 trillion, it recommended the government to do more buybacks and switches in G-secs. It also called for exploring the short-term borrowing route more, saying ” short-term borrowings could be increased from the current levels, as movements in short-term rates depend crucially on liquidity.”