The slowdown in the growth of gross domestic product to 3.1 per cent in the fourth quarter of 2019-20 was because of economic activity being affected due to the coronavirus pandemic, Chief Economic Adviser Krishnamurthy Subramanian said.
"The growth in the last quarter was affected due to the pandemic. All previous measures taken had lost its effect," he told CNN-News18 in an interview, referring to the corporate tax cuts and interest rate deductions that failed to stem the downward trend in growth.
During the quarter under review, only one week of nationwide lockdown was observed from March 25, but Subramanian said the pandemic had already started pulling down consumption and investment since February.
While he expressed hope for a quick rebound, he also cautioned that if the recovery does not start by the second half of this year, India could be staring at a recession.
"If the V-shaped recovery manifests in the second half of the year things may not be as bad, but if the recovery starts by next year then we may be actually looking at a recession," he said.
He also claimed that “India is different from other countries” in terms of the economic impact, and added that it can get back the ratings as it has 100 per cent ability to pay back its loans. "Rating agencies have downgraded not just India but over 30 countries," he added.
On the subject of cash transfers, Subramanian said that it may not have the impact that is required and added that the government is focusing more on supporting MSMEs as it would generate employment.
"It is important to keep the nuance aspect of demand in mind. Because of the precautionary motive to save the demand for discretionary items will continue to be tepid," he said.
Subramanian added that in the economic survey, a close analysis of the slowdown was done and it was concluded that it originated from the bad loans of the banking sector.
There is significant uncertainty when we look at the growth for this particular financial year, Subramanian said, while adding that it will depend on whether or not there is a growth spurt in the latter part of the year.