Mumbai, Dec 8 (PTI) Bimal Jalan, the former governorof the Reserve Bank, today said it’s time for us to move awayfrom the “fixation” for meeting a fiscal deficit target sayingwe instead must judge a government on the basis of theoutcomes its economic policies achieve.
"There is a fixation somehow among all of us to have atarget-related fiscal policy, fiscal deficit, how much itshould be, why it should be, and what is the trade-off betweenwhat you say growth and inflation and so on," he said speakingat a seminar at the RBI-promoted IGIDR here.
"Just ask yourself, does it matter so much, whether itis 3.2 per cent or 3.4 (per cent of GDP). Does it matter forthe people of the country?"The government has targeted a 3.2 per cent of GDPfiscal deficit target for the current fiscal. There areserious concern on achieving this year given the precariousrevenue collection position following the implementation ofthe goods and services tax, which has put a slew of sectors inthe lurch.
Fiscal deficit is the gap between revenue expenditureand revenue receipts.
In the comments, which come days after the officialdata revealed that government has already exhausted 96.1 percent of the budgeted deficit in the first seven months of theyear to March 2018, Jalan clarified that he is not calling forthere being no restraint.
"Don't judge a government by its performance (on thefiscal deficit number), judge it on whether what is being donein terms of policy is leading to the outcomes that we havepromised like investments," the former central banker said.
"My suggestion to all of you is to move away fromfiscal targeting. Moving away from fiscal targeting does notmean that we should have high inflation or high interestrates," he said, adding let Parliament and the people decideafter that.
On inflation, where the Reserve Bank has been mandatedto ensure that the price rise is contained at 4 per cent inthe medium-term with a flexibility of 2 percentage points oneither side, Jalan reiterated his call for moving away from atargeted range, and pointed out that there can becircumstances like a drought or external events which may leadto the resolve being tested.
It can be noted that the rating agencies take a verycritical view on fiscal slippages, because of themacroeconomic instabilities like inflation that it results in.
Jalan's successor at the central bank, YV Reddy, who was alsopresent, hinted to support Jalan, saying it is welcome to lookat fiscal sustainability in a broader aspect, but underlinedthe need to convince the market about it.
"I think sustainable fiscal deficit and itsmacroeconomic analysis is good. But in reality, are we able toconvince the markets? Finally, fiscal sustainability iswhether you can raise the money or not?" Reddy said.
Even as the country has moved up multiple notches on therankings in ease of doing business, Jalan said there continuesto be a slew of regulatory approvals which are required for anact like investing in roads and wondered why this happenedeven when we have a government with full majority.
Jalan also pitched for a reform in the way Parliamentfunctions, stating that the current way of legislativebusiness which sees adjournments, shorter meetings and passingof laws sans debate through voice votes, is not what theConstitution envisions.
"What is the government doing to reform the working ofParliament? It adjourns, meets for two days, most of theresolutions and policies are passed by voice votes; there isno communication between political parties, however, that isnot the intention in the Constitution. The majority governmentis accountable to Parliament and Parliament is accountable tothe nation."Stating that we are a country with "the largestelection and also the largest number of people below povertyline, " Jalan said chasing growth should not be our mainobjective.
Growth, he said, is only the means by which we canensure that it will be "able to provide basic means of livingto everyone". PTI AA BENDSK.
This is unedited, unformatted feed from the Press Trust of India wire.