NEW DELHI: With the economic downturn dominating airwaves over the last few weeks, government policy think-tank NITI Aayog’s vice-chairman Rajiv Kumar on Monday pitched for a fiscal stimulus, stating in an interview with a news agency that he saw space for such a measure. The statement comes just a day after Union Finance Minister Arun Jaitley brushed aside questions on a possible fiscal stimulus, stating that the government had not promised any such measure.
“I do see a case for stimulus,” PTI reported Kumar as saying, with an additional rider that this additional expenditure should be used only for increasing productivity and capital expenditure. Speculation on a possible economic stimulus running up to Rs 40,000 crore has been rife, ever since Jaitley said that the centre would respond to the situation. On Sunday, Jaitley said that he had not “used that phrase (fiscal stimulus).”
“I said, we will respond to situations and your fraternity translated the word respond as meaning stimulus. So you are the ones who should be answering and not me,” Jaitley had told reporters in Washington. Various experts had pointed out that a fiscal stimulus package to revive the economy might affect India’s fiscal consolidation exercise. The finance ministry has pegged the fiscal deficit target for 2017-18 at 3.2 percent of the GDP and 3 percent for the following year. Any fiscal stimulus to boost growth is likely to push up the fiscal deficit.
Kumar, however, said that the consequences depended on how government spending is increased. “It depends on how you increase government spending. If you go and throw money away and give doles then, yes, of course it will give wrong signal. But if you are doing that by increasing productivity and capital investment by making, for example, more roads, more airports, more railways, nobody can argue that this will give a bad signal,” he said.
Kumar further noted that the only issue was if the stimulus could be absorbed productively. “Stimulus money should be used on increasing investment, increasing demand and improving physical and rural infrastructure.” Kumar’s views are slightly out of whack with recommendations made by the newly constituted Economic Affairs Committee to the Prime Minister, which wants the government to stick to its fiscal consolidation road map and has suggested that stimulus to the industry should not be at the cost of fiscal prudence.Bibek Debroy, chairman of the EAC-PM, had said that there was a consensus among the members that the “fiscal consolidation exercise should not be deviated” from.
RBI caution
The Reserve Bank of India has also cautioned the government, arguing that breaching the fiscal deficit target will fire up inflation and hurt long-term macroeconomic stability.