A general view of Indian economy. (Photographer: Dhiraj Singh/Bloomberg)

Government Will Stay Committed To Fiscal Target, Says PMEAC Member

The government is likely to remain committed to fiscal targets even as private investments are yet to pick up and growth-driving public spending slows down, said Ashima Goyal, member of the Prime Minister’s Economic Advisory Council.

The government’s spending rose at 4.1 percent in the second quarter ended September compared to a 19.5 percent jump in the first quarter. That signals a limited fiscal space left for it, Goyal told BloombergQuint over the phone.

There is muted growth on the consumption side with constraints in demand, she said. But that will not translate into “too much expansion in the fiscal deficit unless there is slippage arising from the current taxation regime”, she said. Any change in the fiscal consolidation path will be in line with the suggestions of the Fiscal Responsibility and Budget Management panel, she said.

India’s growth bounced back from a three-year low to 6.1 percent in terms of gross value added in the second quarter compared to 5.6 percent in the previous three months. Public spending slowed down as the government had decided to front-load expenditure, exhausting 96.1 percent of its fiscal deficit target in the first seven months.

Though there is an uncertainty over top line numbers, the government will not resort to a “big-bang expenditure cut” to meet its fiscal target, Siddhartha Sanyal, chief economist at Barclays, said. “There will be some real balancing act going ahead.”

The two economists viewed the 6.1 percent GVA and 6.3 percent GDP growth positively, given that the last five quarters were impacted by multiple one-off events like the demonetisation and Goods and Services Tax.

The Indian economy has been in a structural slowdown phase since 2011 with declining exports, high food inflation and tightening domestic demand, said Goyal. Hereon, she expects the consumption to improve on lower prices and the government’s incentives.

Road Ahead

Sanyal does not expect a rate cut by the Reserve Bank of India in its monetary policy review due on Dec. 8.

He expects the economy to grow at an average 6.8 percent in the ongoing financial year. There might be some uptick in the private investments, but he is not “overly bullish” on it.

Goyal estimates the growth at 6.5 percent. Consumption will return to 60 percent of the GDP, with some improvement in private investment as low-income housing and government schemes begin to fructify, she said.