The Budget Focused Significantly On The Fact That Virtuous Cycle Has To Be Triggered: CEA Krishnamurthy Subramanian

In a bid to remove all the doubts floating around in regards to sovereign bonds, an idea that was mooted by the government in Budget 2019, Krishnamurthy Subramanian, Chief Economic Advisor on Friday indicated that the government is not in hurry to go about the idea of floating foreign currency sovereign bonds and that "there is a deep thinking about the issue and all options will be considered".

Subramanian, who was delivering the 16th Dr R.L. Sanghvi Endowment AMA Annual Lecture on Economics at the Ahmedabad Management Association, said that he was confident that the GDP growth estimates of seven per cent for the year 2019-20, was feasible and the government would achieve that growth rate. The government had already rolled out a strategic blueprint for this as articulated by the Economic Survey tabled in the Parliament earlier this month.

In order to make things clear about the government plan to borrow money from overseas market he said, "Adequate thought will be put into this (sovereign bonds) and all the trade-offs involved will be considered." Subramanian said that adequate thought will be given into this idea and every aspect of this will be taken into the consideration.

The Union Budget 2019-20 mooted an idea of proposing to fund the fiscal deficit by borrowing foreign savings by issuing sovereign bonds in foreign currency. The idea has attracted a lot of criticism from several quarters, including from within the ruling establishment. However, different sort of arguments in favour and against of sovereign bonds poured in ever since this idea was presented in the Budget. 

On being asked about whether the government was reviewing the idea of sovereign bond, Subramaniun said, "Currently, all the options are being considered such as rupee versus dollar and the costs and benefits involved. We will be thinking deeply about it and all options will be considered," he said, but declined to put a time frame on the issue.

"We have laid out the blueprint of the investment-driven virtuous cycle, which is important if you look at countries that have grown over long periods at high growth rates, which has always been on the back of investments," he said. Investment leads to improvement in productivity and this in turn fuels exports and jobs, according to him.

"And the increase in exports and jobs creates purchasing power, which in-turn creates demand and anticipating that demand, firms invest more. That's how the virtuous cycles proceed, when economies do well."

He also said that the Budget has focused significantly on the fact that a virtuous cycle has to be triggered. "In a market-driven economy, there are sometimes some sectors that go through cycles. That is inevitable in any economy across the world. And we also have to be careful, that you can't always intervene in a market economy," the CEA pointed out.