Expert divided over fiscal stimulus to revive economy
, ET Bureau|
Sep 27, 2017, 11.05 PM IST
NEW DELHI: There is division among policymakers and experts on the use of fiscal means to revive economic growth that plunged to a three-year low in the June quarter even as the government prepares a plan to battle the slowdown.
Niti Aayog vice-chairman Rajiv Kumar feels the need to relax the fiscal levers but NK Singh, who headed the committee that has prepared the new fiscal roadmap, cautioned against such a move.
ET had reported last week that the government was mulling a stimulus for the economy but the finance ministry is not keen on relaxing fiscal goals. The government has budgeted a fiscal deficit of 3.2 per cent of GDP for FY18, declining to 3 per cent in next fiscal. GDP growth declined to 5.7 per cent in the June quarter.
“It is more important to target revenue deficit than fiscal deficit. Governments should have the ammunition to respond to cyclical downturns and major structural reforms,” Kumar told ET.
The Fiscal Responsibility and Budget Management (FRBM) review committee report authored by the Singh committee has allowed the government fiscal freedom in the event of stress arising out of significant, far-reaching structural reforms. To the extent the stress is due to the goods and services tax (GST), which was rolled out on July 1, the current slowdown is seen as an apt case for availing of this freedom.
Fiscal consolidation targets may be relaxed for a year or two due to exceptional circumstances, the Confederation of Indian Industry (CII) has suggested. The fiscal deficit touched 92.4 per cent of that budgeted for FY18 by the end of July as the early budget has allowed government to start spending while revenues have not picked up pace.
Relaxing fiscal goals will help the government avoid expenditure cuts if revenues are lower and also give room to spend more on creating capital assets. Singh, a member of the Rajya Sabha, did not seem to be in favour of a stimulus. “Perils of fiscal stimulus always a Catch 22. Tinkering with macro stability would undo universal acclaim that @PMOIndia has received,” he tweeted, offering bank capitalisation and reallocating expenditure as a solution. “Re-prioritising government outlay in areas which have an immediate multiplier effect and job creation is the way forward,” he said. “Recapitalizing banks must be high priority given its catalytic benefits to kick start the economy.” The committee headed by him called for a reduction in India’s debt to manageable levels of 60 per cent of GDP and outlined a fiscal plan to achieve the same. A similar division is evident among outside experts.
SBI group chief economic advisor Soumya Kanti Ghosh has called for a fiscal push to shore up growth. “The government can always use the clause in FRBM that says ‘far-reaching structural reforms in the economy with unanticipated fiscal implications,’ which can provide an escape clause for a 0.5 per cent deviation from the recommended target,” he said in a report.
Niti Aayog vice-chairman Rajiv Kumar feels the need to relax the fiscal levers but NK Singh, who headed the committee that has prepared the new fiscal roadmap, cautioned against such a move.
ET had reported last week that the government was mulling a stimulus for the economy but the finance ministry is not keen on relaxing fiscal goals. The government has budgeted a fiscal deficit of 3.2 per cent of GDP for FY18, declining to 3 per cent in next fiscal. GDP growth declined to 5.7 per cent in the June quarter.
“It is more important to target revenue deficit than fiscal deficit. Governments should have the ammunition to respond to cyclical downturns and major structural reforms,” Kumar told ET.
The Fiscal Responsibility and Budget Management (FRBM) review committee report authored by the Singh committee has allowed the government fiscal freedom in the event of stress arising out of significant, far-reaching structural reforms. To the extent the stress is due to the goods and services tax (GST), which was rolled out on July 1, the current slowdown is seen as an apt case for availing of this freedom.
Fiscal consolidation targets may be relaxed for a year or two due to exceptional circumstances, the Confederation of Indian Industry (CII) has suggested. The fiscal deficit touched 92.4 per cent of that budgeted for FY18 by the end of July as the early budget has allowed government to start spending while revenues have not picked up pace.
Relaxing fiscal goals will help the government avoid expenditure cuts if revenues are lower and also give room to spend more on creating capital assets. Singh, a member of the Rajya Sabha, did not seem to be in favour of a stimulus. “Perils of fiscal stimulus always a Catch 22. Tinkering with macro stability would undo universal acclaim that @PMOIndia has received,” he tweeted, offering bank capitalisation and reallocating expenditure as a solution. “Re-prioritising government outlay in areas which have an immediate multiplier effect and job creation is the way forward,” he said. “Recapitalizing banks must be high priority given its catalytic benefits to kick start the economy.” The committee headed by him called for a reduction in India’s debt to manageable levels of 60 per cent of GDP and outlined a fiscal plan to achieve the same. A similar division is evident among outside experts.
SBI group chief economic advisor Soumya Kanti Ghosh has called for a fiscal push to shore up growth. “The government can always use the clause in FRBM that says ‘far-reaching structural reforms in the economy with unanticipated fiscal implications,’ which can provide an escape clause for a 0.5 per cent deviation from the recommended target,” he said in a report.
