Indian economy contracted 7.3 percent in the last fiscal - its first full-year contraction in the last four decades. However, the fourth quarter saw the economy grow by 1.6 percent aided by high government expenditure as well as some uptick in the manufacturing sector.

Share Market Live

NSE

The Reserve Bank of India (RBI) in its paper on the state of the economy has projected that the second wave may leave a dent of as much as Rs 2 lakh crore in economic output.

In an exclusive interview to CNBC-TV18's Managing Editor Shereen Bhan, Principal Economic Adviser Sanjeev Sanyal explained the paths government to take to support the economy.

Sanyal said, "One possibility is that once you do the unlocking you could see some recovery but then it doesn't gather pace. That will obviously mean we will have to reconsider whether we want to provide some more boosters, whether monetary or fiscal or whatever it is. So that is one possible line of responses."

"Another line of response -- exports are doing very well, FDI continues to be strong and consumption does come back reasonably quickly, in that situation we will have to begin to think a little bit more about inflation which we haven't been too concerned about all this while. So in that case we will have to work out what is the balancing act that we have to do. So that is another possible sequence of events," Sanyal explained.

Also Read: Foreign investors to be allowed participation in domestic bond markets this fiscal: Sanjeev Sanyal

The third sequence of events is that one sees some recovery and maybe even see some inflation but on the other hand there are some segments in the economy that don't recover.

Also Read: Will need to provide support if economy recovers at slow pace, says Sanjeev Sanyal

"In that case, we will have to do adjustments for the overall economy while targeting certain responses for those sectors that are not kind of seeing that recovery. So we do need to consequently respond according to what the feedback loop provides us," said Sanyal.

(Edited by : Abhishek Jha)

First Published:Jun 18, 2021 5:36 PM IST