NEW DELHI: India may have to throw its fiscal deficit targets to the winds and start spending as if there’s no ceiling, if it has to keep the economy going strong as the onset of a global recession may be felt as early as next year.
“Our economy will continue to grow at 5.5-6%. But if the global economic slowdown deepens, then we will be under pressure to relax our fiscal targets and go back to the drawing board with our revival plans,” says M Govinda Rao, former member, PM’s Economic Advisory Council.
UNCTAD in a report released on Wednesday warned that the global economy may slip into recession next year given escalating tariff and currency wars and movements in long-term interest rates.
“A spluttering north, a general slowdown in the south and rising levels of debt everywhere are hanging over the global economy,” the report said.
Unsustainable corporate debt disrupted supply chains, volatile capital flows and rising oil prices could transform a growth slowdown into another recession, it noted.
There may not be an easy way out, according to JNU professor Biswajit Dhar who pointed out that India was already suffering from low domestic demand.
“One possibility was to ramp up exports to increase overall growth, but a global slowdown rules that out.”
Spending is key, says Rao.
“We need to spend our way out of trouble as we have to bolster domestic demand — that’s the only way out. Fiscal deficit targets may need to be relaxed and far more money should be spent on infrastructure projects.”
India has cut key interest rates and corporate taxes, rolled back super-tax on foreign portfolio investors and announced some concessions for various sectors such as automobiles and realty.
The moves have been welcomed by the stock markets but measures to stimulate demand by spending on large infrastructure projects — which can create jobs and fresh demand — have been conspicuous by their absence.
“Traditional ways of boosting demand need to be looked at instead of sops for exporters,” said Pronab Sen, former Chairman of the National Statistical Commission.
Stimulus dose
UNCTAD’s Trade & Development Report 2019 says the way out will involve fiscal stimulus, public investment in infrastructure and green energy, and measures to boost wages.