In Conversation with Subhash Garg

Mr Subhash Chandra Garg on CashFlo Unscripted

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Mr. Subhash Garg is a veteran of the Indian Finance Ministry. A 1983 batch IAS officer for Rajasthan cadre. Bcom, LLB, a qualified Cost & Management Accountant and Company Secretary. Former Finance & Economic Affairs Secretary, Govt. of India. Former Executive Director – World Bank. Numerous other senior positions at state, national and  international level.

Talking to such a knowledgeable personality was a truly unique experience, for his knowledge and understanding is so extensive, and so detailed are his inputs. We spoke on numerous subjects, ranging from the precise impact of the COVID-19 lockdown, the liquidity problem, labour laws and much more.

Our opening note, of course, the COVID-19 lockdown. In Mr. Garg’s estimation, we have lost about 10% of our output in the last 40-45 days and 10 crore people have lost their jobs.

True, we cannot put a price on the lives protected by keeping people isolated and reducing the effect of the COVID-19 contagion. That said, the cost to the economy has been high.

So what is the main hope for the economy after taking such a body blow over the last 45-50 days? The government stimulus. A package that added up to about ₹21 lakh crore, with significant allocations to the MSME sector, the lifeblood of the Indian economy. At first read, the scale of the stimulus is impressive. However, when we get into the details, the actual grant and stimulus from the Government, excluding measures such as clearance of outstanding bills, totals to a mere 0.7% of GDP.

Just allocating funds for the stimulus isn’t sufficient, however. We need to look at systemic improvements to the availability of liquidity in the economy. Liquidity was already at a surfeit prior to the lockdown and is set to get even worse now. There is an interesting dynamic at play right now. People like us, earning, are unable and unwilling to spend right now. So savings with banks are increasing. The RBI tried to increase liquidity, but TL, TRO and CRR cuts created greater liquidity with banks which has not been released. Thirdly, cash draw has gone down as businesses are shuttered.  

The result, ~8.5 lakh crore parked in banks and the RBI, higher even than during demonetization.

The economy needs this funding to flow, but there are challenges. We have the highest NPA rate in the world, the highest business loan to fraud ratio. Risk is increasing as businesses are struggling, and banks are going to be even more reticent to lend.

This is not a situation which lends itself to a “silver bullet” fix, but we’ll need to see what the Government, RBI and banking sector are able to do over the coming months to alleviate the liquidity problem.

On a slightly more positive note, India does stand to potentially reap the benefits of the current global sentiment to diversify manufacturing beyond China. Or can we? The trade war itself has moved manufacturing out of China, to Vietnam, Bangladesh and Indonesia. Little to India. Can we do better this time around?

To actually bring manufacturing to India, we need to solve for India’s non-competitiveness in manufacturing, our high-tariff regime and involvement of Government in industry, all of which hamper, slow market entry and reduce confidence in India’s manufacturing base.

This would then seem, at the surface, a good time for long-awaited reforms, such as those announced in UP for labour. But it isn’t. Labour law reform affect only  1.25% of the working population, who benefit from protection. We need more from the government, especially to address the needs of MSMEs and their labour.

MSMEs will face even more uncertain times now, compared to large corporations. COVID-19 and similar situations are here to stay, and companies need to adjust. A primary priority has to be for companies to go digital and reduce human contact. In the long run, businesses need to relook at how they achieve scale with incorporating new measures. The risk of infections and hospitalizations even months from now are far less than the cost of digitization, and it will be important for MSMEs to adopt digitization to build confidence in their own customers.

As India has stayed at home and waited out the COVID-19 pandemic, we’ve all wondered just how hard the economy has been hit, and what its really going to take to get it back on track again. Mr. Garg was able to shed some powerful light on the scale of the impact – 10% of the GDP and 100 million jobs lost; the systemic problems which have always existed and exacerbate the challenge of recovery, and what it will take from government and businesses to get going again. A tremendous experience for myself, and a lot to think about for all of us. Do consider listening to the discussion in its entirety on the CashFlo Unscripted Podcast. If you have any feedback, do write to us at

– Dushyant

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