With these subdued projections, India is likely to record its worst growth performance since the 1991 liberalisation of the economy.
"The number given by the World Bank
and IMF in terms of the changes are way too optimistic because even if we lose one month's output, we are talking about pretty negative rate of growth and that is what should determine how we respond," Subramanian said in a webinar organised by economic think-tank NCAER.
"We are going to experience a sharp collapse in output for one month. We have to spend 2 per cent on medical side which is slightly underestimated... For one month output loss even if we make up one third of output loss by social cushioning or propping up financial system, still it would be 3 per cent of GDP. So the number we came up with Rs 10 trillion (Centre and states combined) or 5 per cent of the GDP," he said.
Because the economy is going to slow down, revenue collection for this year would be much less than the last year, he said, adding the revenue loss would be 1.5 per cent of the GDP.
Subramanian recommended five ways of financing additional expenditure over a period of one year, including cutting expenditure and borrowing directly from the RBI or monetising debt.
He said Rs 1-1.5 trillion could be mobilised by cutting expenditure, while another Rs 1-1.5 trillion could be raised from multilateral institutions and NRIs.
RBI could print about Rs 1.5-2 trillion and borrowing through issuance of bonds could be in the range of Rs 4-5 trillion, he said.
He also pitched for setting up a 'Solidarity Fund' where the 'haves' will pool in money for supporting the 'have-nots'. This could garner about Rs 1 trillion..
"The government should consider a Solidarity Fund with a one-time annual contribution coming from the wealthy and the employees in the organised sector.
"This contribution can take the form of taxes or elimination of middle-class subsidies identified in the Economic Survey of 2016. The wealthy could contribute via a wealth tax with thresholds set by property values say above Rs 5 crore," he said.
Salaried employees in the public and private sectors could contribute via a small, progressive tax on salaries and pensions, he said, adding middle class subsidies that could be eliminated include interest and tax deductions for small savers, favourable taxation of gold and other luxuries.
Wealth taxes and elimination of subsidies for the rich should in any event be part of the long-run reform agenda to reduce growing inequality, he said.
He also said that the government should relax the borrowing norms for the states as this is an extraordinary situation which calls for extraordinary responses.