New Delhi: The Prime Minister’s Economic Advisory Council (PMEAC) has rejected the idea of mid-year fiscal stimulus to spur a revival in economic growth.
Instead, at the council’s first meeting on Wednesday, members listed 10 policy priorities for the government in the run-up to the presentation of 2018-19 budget.
Not only has the PMEAC revived the debate on fiscal stimulus, but also implicitly identified the likely priorities for next year’s Union budget.
Briefing reporters after the meeting, chairperson Bibek Debroy said the PMEAC would assist in monitoring public spending and had recommended job creation as the biggest priority.
The PMEAC will chalk out a blueprint to facilitate the integration of the informal into the formal economy. The other focus areas are monetary policy, public spending, agriculture and animal husbandry, institutions of economic governance, patterns of consumption and production and the social sector. The council will finalize its recommendations on five of the 10 identified areas in a month.
“Government’s fiscal consolidation exercise should not be deviated from,” said Debroy, adding to an ongoing debate in the government for a mid-term fiscal package.
The PMEAC is an independent body designed to guide the government on policy decisions.
The majority view in the government is not inclined towards relaxing its fiscal deficit target of 3.2% of gross domestic product for the current financial year.
On 28 September, finance minister Arun Jaitley had advised state-owned companies to make extra capital spending of Rs25,000 crore over and above the Rs3.85 trillion budgeted for 2017-18 to stimulate economic growth.
N. R. Bhanumurthy, professor at the National Institute of Public Finance and Policy, a think tank, pointed out that the union government has been meeting only part of the Fiscal Responsibility and Budget Management Act provisions—meeting the fiscal deficit target but not necessarily the revenue deficit target. This, he said, “in principle, need not be growth enhancing”.
“If at all revenue deficit target is to be relaxed, fiscal deficit target should also be relaxed to ensure that capital expenditure is not compressed,” said Bhanumurthy.
According to Debroy, chief economic advisor in the finance ministry Arvind Subramanian, who made a presentation at the meeting, stressed on policy interventions to revive investments and exports.
Due to the temporary disruption in economic activity caused by last November’s demonetization exercise and the rollout of GST in July, economic growth slowed to 5.7% in the April-June period of 2017-18, the slowest pace in three years, from 6.1% in the preceding three months. This has prompted several agencies to lower India’s growth forecast.