“What is happening at the moment is due to the pent up demand which has come to the market and has led to certain increase in economic activity,” Sen, the former chief statistician of India, said.
According to him, “The government gameplan should be to continue with the stimulus for three years and not be one off”.
He said when COVID-19 struck India and the lockdown began, there was already a negative momentum in the economy and capacity utilisation had gone down.
The government should immediately pay off the dues of the states, beneficiaries of social sector schemes and clean its budget, he said.
On monetization of deficit, he said according to the RBI the central bank is not in a position to do that.
A clause was inserted in the RBI Act on monetisation of deficit and the government can only come out with an ordinance to change it.
“This (ordinance) will allow RBI to monetize the deficit for a limited period of time. But then there is a fear of rise in inflation”, he said.
Sen said, “When we talk about inflation we talk about consumer price index (CPI). But the relevant index to track is wholesale price index (WPI) which is in the negative territory for the last five months”.