Budget ‘will reflect balanced view on fiscal deficit target’
The Government is open to the idea of going in for higher fiscal deficit to propel growth in the upcoming Budget and will take a balanced view after considering various factors, Chief Economic Adviser (CEA) Arvind Subramanian said. “There are very good arguments on both sides... and that’s why it is a very difficult decision,” he said when asked whether the government would deviate from the fiscal consolidation road map in view of the difficult global environment and the need to boost growth.
While some economists, including NITI Aayog Vice-Chairman Arvind Panagariya, have suggested that the government should go in for higher public spending to achieve higher growth, others, including Reserve Bank of India (RBI) Governor Raghuram Rajan, have cautioned against deviation from the fiscal discipline path. As per the revised fiscal consolidation road map, the government has to achieve fiscal deficit of 3.5 per cent of gross domestic product (GDP) in 2016-17, from 3.9 per cent estimated in the current fiscal.
Asked which side of the pendulum the Chief Economic Adviser is on, he said, “I am very glad that I am not the Chief Political Decider, I am just the Chief Economic Advisor. Sometimes, the CEA is above views. And this time, I am above views. I have no views. You will see that on Monday (when the Budget will be unveiled).”
Subramanian said there has been very lively internal debate within the government at the highest level on the issue. “The question was should we expand the deficit or reduce the deficit. The question was whether to stick to the path we announced or stick to the path at a slightly slower pace.”
“Now, very strong views were expressed, but it’s to the credit of the government that it allowed this debate to happen. What we have done in this Survey very fairly represents both sides of the argument,” he explained.
Making it clear that the budget deficit target of 3.9 per cent of gross domestic product for the current year will be adhered to, the Economic Survey 2015-16 has said the next fiscal will be “challenging”, given the additional resources needed. It had said “credibility and optimality” argued in favour of sticking to deficit target of 3.5 per cent of GDP for 2016-17, indicating some room for an upward revision.
“There are very good arguments for a strategy of aggressive fiscal consolidation... and equally good arguments for a strategy of moderate consolidation that can place the debt on a sustainable path while avoiding imparting a major negative demand shock to a still-fragile recovery,” it had said. “The Union Budget will carefully assess these questions.”
One option may be to narrow the deficit by 0.2 or 0.3 percentage points of GDP each year over the next five years, which would take the gap to 3 per cent of GDP by March 2021. Expressing hope over implementation of the goods and services tax, he said it should be through in the Budget session. “GST... I am hopeful in the Budget session by April,” he said.