Finance Minister Arun Jaitley recently struck down reports of a possible fiscal stimulus of over Rs 40,000 crore.
Mumbai: Amidst the Indian economy slowing to a three-year-low growth of 5.7 per cent, there seems to be a difference in opinion among the Indian economists regarding the case for a fiscal stimulus to boost growth.
Finance Minister Arun Jaitley recently struck down reports of a possible fiscal stimulus of over Rs 40,000 crore after six successive quarters of dip in the economic growth. He said that the government will “respond to situations” instead.
However, the vice-chairman of government think-tank Niti Aayog seems to feel that there is a case for fiscal stimulus. Rajiv Kumar on Monday said “It depends on how you increase government spending. If you go and throw money away and give doles then, yes, of course it will give wrong signal. But if you are doing that by increasing productivity and capital investment by making, for example, more roads, more airports, more railways, nobody can argue that this will give a bad signal."
Rajiv Kumar’s statement comes amidst economist and member of Prime Minister Narendra Modi-appointed Economic Advisory Council (EAC) Surjit Bhalla stating that the government should stick to its 3.2 per cent fiscal deficit target. In fact, the EAC, headed by Bibek Debroy said “Government’s fiscal consolidation exercise should not be deviated from.”
On the contrary, Surjit Bhalla, in an interview on CNBC TV18 said that lowering India’s interest rates was the only way to consolidate India’s economic growth. “One culprit, most important culprit is interest rates,” he said, adding, “There has been deceleration for five quarters and a large part of the deceleration is accounted for by the rise in real interest rates.”
Bhalla’s call for interest rate-cut comes in the wake of the Reserve Bank of India (RBI) not budging from the repo rate of 6 per cent, which it had lowered in August. The RBI in its October monetary policy review meet did not lower the lending rate citing upward tick in inflation in coming months.
“Inflation declined 700 basis points since 2013; interest rates by 200, it does not take a mathematical genius to understand that,” said Surjit Bhalla. He has in the past also pressed upon the RBI to boost the economic growth by lowering the interest rates.
Meanwhile, consumer inflation and wholesale inflation in September eased to 3.28 per cent and 1.36 per cent respectively.