NEW DELHI: Many among India’s leading economists as well as chief ministers do not seem to be in agreement with the IMF which has prescribed that India should avoid a fiscal stimulus to spur growth and instead concentrate on cutting public debt as a way out of the economic morass it has sunk into.
The IMF in a report on its consultations with India has flagged the fact that though the Union government has targeted a fiscal deficit of 3.3 per cent, the total public sector borrowing may well be nearer 8.5 per cent. It has advised that this should be cut down to 5.4 per cent.
The World Bank arm’s advice is that India should avoid the fiscal stimulus and instead generate revenue for its development needs by slashing debt. “Economic development projects and enhanced social initiatives in India will be vital in the coming years … but to generate the revenue to get them off the ground, India’s debt, among the highest in emerging markets, must be reduced,” it said.
India’s chief ministers, at a meeting with Union finance minister Nirmala Sitharaman last week, recommended that the central government should relax fiscal deficit targets in order to give a spending push to India’s slowing economy. India posted six-year quarterly GDP growth of 4.5 per cent in July-September 2019 besides recording straight three months of factory production numbers shrinking in the months up to October this year.
Prof. Arun Kumar, Malcolm S Adiseshiah Chair at the Institute of Social Sciences, said, “The IMF prescription is a strict monetarist approach and suits more developed countries with near full employment … our situation is different, the informal sector is in tatters, unemployment is rising and we have excess capacities, we need a spending stimulus.”
However, Dr M Govinda Rao, former member of the PM’s Economic Advisory Council, said India needs to come up with reforms and to explore other ways of raising funds. “More efforts to sell off PSUs is needed, we need to take up social welfare ad infrastructure projects but we also need to slash our huge subsidy burden,” Rao said.
“As it is besides public borrowing, we have indulged in off-budget borrowings through the Food Corporation of India, Fertiliser Corporation and by delaying pay-outs to states … the centre does not have fiscal space and it also needs to be more transparent about its fiscal deficit.”
The IMF in some ways echoed Rao, saying, “Any growth impetus should instead come from other measures (monetary policy and structural reforms).”
However, both did not rule out a fiscal stimulus. “If the fiscal deficit has to be relaxed, let us do so built with clear roadmap and transparency,” Rao said, while the IMF said, “In the event of a more severe economic slowdown, any fiscal stimulus should be temporary, focusing on measures to boost near-term growth such as immediate investment expensing, or public infrastructure spending.”