New Delhi: The need of the hour in the current time is to focus on growth rather than on fiscal prudence and if there is a need for extra borrowing from the market in the current and next fiscals to meet growth, it should be looked at as an option, Chief Economic Advisor KV Subramanian said Friday.
“We have delineated the overall stands that need to be taken in times like this. India has been in such a situation earlier as well. There is always a delicate balance between sparing growth and keeping the fiscal in order. The view that we have articulated is that in this delicate balance, it is better to lean on growth. At this point, it is important for us to lean on growth and we have recommended it directionally,” Subramanian said in an interaction.
With the Economic Survey 2020 clearly stating that this is the time to focus on growth, and thus cutting expenditure is not an option, therefore, in times like this, growth should take precedence over fiscal prudence, the CEA said.
“If extra borrowing is not off the table… if it is required to fund expenditure… These and other options can be considered,” he said.
“I think the case for leaning on growth is important, in the balance between fisc and the growth, we need to focus on growth and take the steps that are necessary to enable it.”
The CEA said the effectiveness of cut in personal income tax in raising incomes in the hands of the people is limited.
“In a country like India, the impact of a tax rate cut on actual disposable income may not be as pronounced as it were in an advanced economy. Survey is recommending that this is the time when the policies should be leaning towards growth,” he noted.
The CEA also mentioned counter-cyclical measures to push growth, which he said, could more investment in social sector spendings. In rationalisation of subsidies, he said targeting of subsidies is very important.
With the CPI inflation has jumped to 7.35 per cent in December 2019 on food price hikes, the CEA also said that he does not think there is any danger from inflation.
“Food is the large contributor of the components of CPI inflation of which significant increase was due to onion prices which has already started moderating and will go down further. My outlook for inflation is I would not be too worried about it… WPI inflation (currently at 2.5 per cent), I think we should expect CPI inflation to be range-bound,” Subramanian said.
On the issue of the possibility of the government resorting to off-budget borrowings, the CEA said it has to be done very carefully.
“In off-budget borrowing, you have to be careful… not plugging everything together, if you have a profitable PSU borrowing like NHAI… Why is that any different from a private sector entity borrowing out of its balance sheet. So I think that the nuance point must be kept in mind. I would suggest transparently disclosing is a correct approach and it is some way part of the Budget document. The difference between those entities that can borrow on their own as against those who can not do that… there is a nuance there that must be kept in mind,” he said.