PM’s economic panel bats for fiscal consolidation
The newly constituted Economic Advisory Council to the Prime Minister (EACPM) on Wednesday batted for sticking to fiscal consolidation at a time when there was demand for fiscal stimulus to boost sagging economic growth. After its first meeting, the Council arrived at a broad consensus about the slowdown but also said there were green shoots, which would be visible in the months to come.
It has identified major areas for accelerating growth and employment over the next six months, “with greater last mile connectivity”.
The Council disagreed with the International Monetary Fund (IMF), which drastically cut India’s growth projections from 7.2 per cent to 6.7 per cent for FY18, after growth fell to a three-year low of 5.7 per cent in Q1 FY18.
“There is a consensus (on fiscal deficit targets), but you will not get the answer what the consensus is beyond the statement that fiscal consolidation exercise should not be deviated from,” Bibek Debroy, chairman, EAC-PM, said after the meeting.
The Centre’s fiscal deficit has already touched 96 per cent of the Budget Estimates in the first five months of FY18, against 76 per cent in the same period of FY17. This was despite the fact that the government heavily cut capital expenditure for August, neutralising front-loading of outlays for the initial months. If the government does not deviate from its target of reining in its fiscal deficit at 3.2 per cent of the gross domestic product (GDP), providing stimulus would be almost impossible. If one adds the states’ financial position, the problem of fiscal deficit becomes even more problematic.
Reserve Bank of India (RBI) Governor Urjit Patel had also said there was hardly any space left for fiscal stimulus. The general fiscal deficit, or the combined deficit of the Centre and states, is in the region of 6 per cent of GDP, which is a loose fiscal stance. “In other words, we should be very cautious, lest fiscal actions undercut macroeconomic stability,” Patel had said. There are, however, different views on a stimulus package. For instance, NITI Aayog Vice- Chairman Rajiv Kumar is of the view that it is revenue deficit which is more important than fiscal deficit. “The government must have instruments to counter cyclical situations,” he had said. Whether stimulus or not, EAC-PM on Wednesday said it would give suggestions to revive economic growth and create job opportunities to the prime minister.