NEW ECO­NOMIC COUN­CIL SAYS NOT IN FAVOUR OF STIM­U­LUS

PM Modi’s ad­vi­sory group says fo­cus should be on fis­cal con­sol­i­da­tion

Hindustan Times (Gurgaon) - - Metro - Jatin Gandhi and P Suchetana Ray let­ters@hin­dus­tan­times.com

An ad­vi­sory group of eco­nomic ex­perts con­sti­tuted by Prime Min­is­ter Naren­dra Modi on Wed­nes­day warned against breach­ing the fis­cal deficit, po­ten­tially rul­ing out the pos­si­bil­ity of a stim­u­lus pack­age to re­vive the sput­ter­ing econ­omy.

The com­ments by the Eco­nomic Ad­vi­sory Coun­cil, led by Bibek De­broy, come amid In­dia’s growth slump­ing to a three-year low of 5.7% in the April-June quar­ter, which many ex­perts at­tribute to de­mon­eti­sa­tion.

With growth slip­ping, doubts are be­ing raised over rev­enue as the Goods and Ser­vices Tax is ex­pected to im­pact collections, leav­ing lit­tle el­bow-room for the gov­ern­ment to dole out sec­tor­spe­cific stim­u­lus pack­ages or push up growth with higher cap­i­tal ex­pen­di­ture.

An ad­vi­sory group of eco­nomic ex­perts con­sti­tuted by Prime Min­is­ter Naren­dra Modi on Wed­nes­day warned against breach­ing the fis­cal deficit, po­ten­tially rul­ing out the pos­si­bil­ity of a stim­u­lus pack­age to re­vive the sput­ter­ing econ­omy.

The com­ments by the Eco­nomic Ad­vi­sory Coun­cil (EAC) come amid In­dia’s eco­nomic growth slump­ing to a three-year low of 5.7% in the April-June quar­ter, which many ex­perts at­tribute to de­mon­eti­sa­tion of ₹500 and ₹1,000 notes. The move sucked out 86% of the cur­rency in cir­cu­la­tion from a largely cashre­liant econ­omy.

With growth slip­ping, doubts are be­ing raised over rev­enue as the Goods and Ser­vices Tax (GST) is ex­pected to im­pact collections, leav­ing lit­tle el­bow-room for the gov­ern­ment to dole out sec­tor spe­cific stim­u­lus pack­ages or push up growth with higher cap­i­tal ex­pen­di­ture.

“The fis­cal con­sol­i­da­tion ex­er­cise should not be de­vi­ated from,” econ­o­mist Bibek De­broy who leads the EAC said on Wed­nes­day af­ter the first meet­ing of the body.

The EAC’s stance con­tra­dicts NITI Aayog vice chair­man Ra­jiv Ku­mar’s views who said last Wed­nes­day that the econ­omy will do well with a fis­cal stim­u­lus and there will be no harm if the deficit tar­get is missed.

Though the gov­ern­ment aims to keep the fis­cal deficit — the gap be­tween the rev­enue earn­ings and ex­pen­di­ture — at 3.2% of the GDP, it is fac­ing re­newed calls from the in­dus­try for a booster dose to en­cour­age in­vest­ments, cru­cial for cre­at­ing jobs.

The Modi gov­ern­ment is un­der at­tack from both the op­po­si­tion and other or­gan­i­sa­tions al­lied to its own ide­o­log­i­cal par­ent, the Rashtriya Swayam­se­wak Sangh (RSS) over what they call a” job­less growth”.

Ila Pat­naik, a pro­fes­sor at the Na­tional In­sti­tute of Pub­lic Fi­nance and Pol­icy (NIPFP), said a stim­u­lus pack­age will breach the fis­cal deficit tar­get that will, in turn, ef­fect In­dia’s credit rat­ings. “The trou­ble of a large fis­cal deficit is its ten­dency to spill over to the cur­rent ac­count. And high twin deficits would in­crease the fragility of the econ­omy,” Pat­naik added. An­other coun­cil mem­ber, Sur­jit Bhalla, said the EAC was unan­i­mous that “there is a slow­down” in the econ­omy .

Apart from Sur­jit Bhalla, the other mem­bers are NITI Aayog’s prin­ci­pal advisor, Ratan Watal along with econ­o­mists Rathin Roy and Ashima Goyal as part­time mem­bers.

De­broy said the EAC has iden­ti­fied 10 fo­cus ar­eas, in­clud­ing eco­nomic growth, em­ploy­ment and job cre­ation, in­for­mal sec­tor and its in­te­gra­tion and the fis­cal frame­work and mon­e­tary pol­icy. Mem­bers will pre­pare re­ports on the fo­cus ar­eas and dis­cuss them in a “for­mal meet­ing” in Novem­ber, he said.

Chief Eco­nomic Advisor to the gov­ern­ment, Arvind Subra­ma­nian, gave the EAC mem­bers a pre­sen­ta­tion on the econ­omy and De­broy said the coun­cil will work keep­ing in mind that the bud­get 2018 ex­er­cise is un­der­way.

The gov­ern­ment wants to raise its cap­i­tal ex­pen­di­ture be­yond the bud­geted ₹3.10 lakh crore but is cau­tious that it does not breach its fis­cal deficit tar­get. It has al­ready met 92% of its fis­cal deficit es­ti­mate of ₹5.46 lakh crore for 2017-18. Com­pound­ing the prob­lem is the re­luc­tance of pri­vate in­vest­ment to pick up.

Sev­eral min­istries of the gov­ern­ment have al­ready been in mul­ti­ple hud­dles to look for ways to rev-up the econ­omy. But now the re­spon­si­bil­ity will rest on the PM’s newly-cre­ated eco­nomic ad­vi­sory coun­cil.

“The en­tire thrust of ev­ery­thing we do will be on im­ple­mentable rec­om­men­da­tions,” De­broy said.

SANCHIT KHANNA/HT FILE

The ad­vi­sory coun­cil’s com­ments come af­ter the econ­omy’s growth slumped af­ter last year’s de­mon­eti­sa­tion.

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