‘Chip paucity hurting car sales, not tepid demand’

India’s economic growth is facing challenges not due to lack of demand, but because of supply constraints, a senior Finance Ministry official said, stating that car sales were down not because people didn’t want to buy cars but because of the shortage of chips facing the auto industry.

Taking on economists and ‘Nobel laureates’ for urging India to spur demand to revive the economy, Principal Economic Adviser to the Finance Ministry Sanjeev Sanyal said there was no point in pumping demand by endowing ‘helicopter money’ on people if the supply side is unable to respond.

“The biggest problems that we are now facing in economic expansion, at least in India, is not lack of demand. It is in fact, that we have run out of chips for our automobile industry, it’s not that people don’t want to buy cars, we can’t produce them because we can’t procure chips,” Mr. Sanyal said.

“Similarly, there is enormous demand for our exports…we are seeing record exports. But the lack of containers and ships is constraining us,” he said, stressing on the government’s focus on supply-side interventions. He was speaking in an interaction with investment banking firm Elara Capital’s chief economist Garima Kapoor on Thursday.

Mr. Sanyal said India’s macroeconomic situation was in good shape to scale up growth very rapidly. “This year, we are likely to see double-digit growth. But I think we will see possibly double-digit growth even in 2022,” he said.

Anticipating strong growth in the July-September quarter after the 20.1% GDP growth in the first quarter, the former banker said some sectors involving personal services were still under lockdown and would be opened up.

“Wherever we have opened up, we have found demand coming back very strong. So even in areas like tourism, restaurants, which we had restricted till recently, wherever restrictions are even mildly removed, we see demand coming back,” he pointed out.

Terming an overhaul of India’s direct taxes as the only major structural economic reform that remained to be done, Mr. Sanyal also said the government would now focus on administrative reforms of the bureaucracy and judiciary as enforcement of contracts remained an area of concern.

He also indicated the government may tweak some of the provisions around the three agriculture laws that are facing protests.

“We have a supply-side approach to most of the reforms we are doing, including the ones which we have faced political opposition over, like the farm sector reforms. We remain committed to them. Sure, we may need to make some adjustments in order to make it politically palatable in the one or two States where there is opposition, but nevertheless, we remain committed to the general direction,” he underlined.

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Printable version | Jan 22, 2022 9:23:20 PM |

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