Budget 2021: Maintaining Growth Momentum Will Lead To Fiscal Consolidation - Sanjeev Sanyal
Joggers wearing protective masks run along Rajpath boulevard as the Rashtrapati Bhavan stands in the background. (Photographer: Prashanth Vishwanathan/Bloomberg)

Budget 2021: Maintaining Growth Momentum Will Lead To Fiscal Consolidation - Sanjeev Sanyal


The Indian economy needs anti-cyclical economic policies, including fiscal support, to get the economy back on track, according to Principal Economic Adviser Sanjeev Sanyal.

In an interview with BloombergQuint after Finance Minister Nirmala Sitharaman tabled the Economic Survey of 2020-21 in parliament on Jan. 29, Sanyal said India decided to spend money cautiously at the beginning of the Covid-19 pandemic which worked well. He said the government had scarce fiscal resources so it decided to address the supply side while pressing “on the accelerator on the fiscal front” September onwards when the economy started to reopen.

He also hinted at the need for a review of the debt-to-GDP ratio target of 60% as suggested by a previous Fiscal Responsibility and Budget Management Act Review committee. India’s debt-to-GDP ratio is set to touch 85% in the ongoing fiscal.

When asked when the government would return to a fiscal consolidation path, at a time when the Economic Survey has pushed for an expansionary fiscal stance going into the next fiscal, Sanyal stressed that maintaining growth momentum will contribute towards it as it will generate revenue because spending will be done from an “anti-cyclical” perspective.

The government’s principal economic adviser did say that only addressing the demand side, mainly through welfare schemes for the poor, at the start of the pandemic would have led to inflation and now the government is in a better position as it has addressed the supply-side issues through some “politically-difficult reforms”.

Sanyal said an asset quality review of the banking system should be done soon to get its “real position” while discussing various models under consideration for setting up a bad bank.

Highlights From The Interview:

  • We’re in a good shape in terms of indebtedness because we have been very conservative and timed (spending) well.
  • Our recovery will be one of the strongest in the world over the next two years.
  • In a country like India, maintaining growth momentum is in itself a very important part of fiscal consolidation because we’re a country where the interest rate on debt is usually significantly lower than nominal GDP growth rate.
  • We’re in a position where the supply-side response in India would be much better than it would have been if those reforms were just on the demand side.
  • Growth is the most important welfare measure you can take, because it gets jobs back and the economic momentum going. We’re spending on capital because we recognise we’re running debts too.
  • Our capital expenditure more than doubled in October; then we tripled it, in November; and then 62% it was in December. The January numbers will be quite strong as well.
  • Spending more in an anti-cyclical way to keep growth is actually good even from fiscal perspective but this has to be done in a sensible way.
  • The banking system and economy went into a shock. A certain forbearance has been provided in the system, but at some point in time you’ve got to begin unwinding this and we will have to take a re-assessment of the situation.
  • Not so far out in the future, we should do an AQR (asset quality review) and get the real position of the banking system. I think our banking system quite came well out of this, nonetheless, we need to have a good look.
  • Past experience with the bad bank hasn’t particularly been a good one. There are also pros to it.

Also read: Economic Survey 2021: Top 10 Highlights

Watch the full conversation here:

Also read: Budget 2021: What You Need To Know

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