Sensex, Nifty under heavy selling pressure over fading stimulus hopes

The Sensex and Nifty on Thursday came under heavy selling pressure over fading hopes of a stimulus to revive economic growth. Chief Economic Advisor (CEA) K. Subramanian at a summit in New Delhi said the Indian economy does not need a fiscal stimulus to tackle the ongoing economic slowdown.

“We can’t expect the government to intervene every time some sectors go through sunset. Not all sectors are doing bad, some are doing well,” the CEA said.

The benchmark Sensex fell sharply by 587.44 points or 1.59 per cent to 36,472.93 while the Nifty declined by 177.35 points or 1.62 per cent at 10,741.35. Subramanian said policymakers need to be careful while deciding on any fiscal stimulus as a way to boost economic growth.

Chief Economic Advisor (CEA) K Subramanian on Thursday said the Indian economy does not need a fiscal stimulus to tackle the ongoing economic slowdown.

Speaking at the Hero Mindmine Summit that brings together industry and government to discuss economic policy, Subramanian said policymakers need to be careful while deciding on any fiscal stimulus as a way to boost economic growth.

“We can’t expect the government to intervene every time some sectors go through sunset. Not all sectors are doing bad, some are doing well,” the CEA said.

In his address at the event, former Finance Secretary Subhash Chandra Garg echoed the CEA’s views that there is no necessity of a fiscal stimulus for the economny at this juncture.

Garg also said the country’s gross domestic product (GDP) growth during the first quarter of the current fiscal could be in the range of 5.5-5.6 per cent. The GDP growth in the fourth quarter of the last fiscal came in at 5.8 per cent caused by slowdown in key sectors like agriculture, manufacturing and industry.

Garg’s assessment is important as he was the Finance Secretary till July this year and was the top bureaucrat in the ministry during most of the current slowdown that began last fiscal.

The former Finance Secretary also suggested bringing down interest rates rather than giving any stimulus to the economy, adding that the recent surge in bond rates would hurt industry even more. Garg also said there is no global recession at present.

The CEA said the Insolvency and Bankruptcy Code (IBC) has helped cut state-run banks’ non-performing assets (NPAs or bad loans) by Rs 3 lakh crore, while capital budgeting has to be undertaken carefully.

Meanwhile the government is expected to take policy measures to complement Reserve Bank of India’s (RBI’s) rate cut for reversing the slowdown in economy, NITI Aayog Vice Chairman Rajiv Kumar told IANS.

“The RBI Governor has himself said that there are several indications of a slowdown in the economy. That is why the central bank has taken the step of further reducing the repo rate.

“So, I think that the RBI having acted, the government will also take steps because it has been recognised that there is slowdown,”he said.

In its monetary policy review earlier in August, the RBI lowered the GDP growth rate for 2019-20 to 6.9 per cent, as compared to earlier estimate of 7 per cent.

The central bank slashed repo rate for fourth time this year bringing it down to 5.4 per cent to spur growth by providing cheaper loans. There is growing distress across various sectors and industry has demanded sops and relief package from the government to tide over the crisis.

Industry captains like Anand Mahindra, AM Naik of L&T, Adi Godrej and many others have flagged demand slowdown in the economy.

The country’s automobile sector, one of the key employers in the manufacturing sector, reported its steepest fall in vehicles sales in almost two decades in July leading to massive job cuts across the value chain.

“Policy steps are being taken and would continue to be taken to reverse the slowdown. The RBI has already acted and the government is also expected to take some measures to reverse the trend as soon as possible,” Niti Vice Chairman said.

The economic growth has been slipping quarter after quarter with January-March period GDP growth slowing to 5.8 per cent in FY19. With most macro indicators showing demand weakness, the growth is expected to have further declined in April-June period. Financial services firm Nomura expect the GDP to moderate to 5.7 per cent in the June quarter.

With most engines of growth such as investment, demand, consumption and exports slowing down, the pressure is mounting on the government to act. The slow credit growth and stressed assets of banks are another area of concern and if not addressed in time could add to further deceleration in business activities. It may throw challenges in the way of government’s plan to make India a $5 trillion economy by 2024-25.

Indo-Asian News Service