The Telegraph
Monday , May 26 , 2014
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Contrarian tips for Modi

Panagariya: Offering advice

New Delhi, May 25 (Reuters): Indian-born economist Arvind Panagariya, who is widely expected to take a top advisory role in the Narendra Modi government, wants its first budget to boost capital spending even at the risk of a higher fiscal deficit.

Panagariya, 61, whose market-friendly, pro-growth economics has helped shape Modi’s outlook, said in an interview that higher spending was critical to India’s economic revival.

Modi swept to power on May 16 on a promise of reviving an economy that is undergoing the worst slowdown since the 1980s. Financial markets are rallying on hopes that the strong mandate will enable him deliver on his promise.

“In an economy where you are trying to push up the growth rate, a fiscal deficit of 4.5 per cent (of GDP) is fine,” Panagariya, a professor at Columbia University and a former chief economist of the Asian Development Bank, said.

That number is 4 basis points higher than the 4.1 per cent budgeted by the outgoing government for the fiscal that began in April, which Panagariya called an “unrealistic” target.

Modi is due to be sworn in as the Prime Minister on Monday. His government has to present a budget by July for the remaining part of the fiscal that ends in March.

Panagariya’s suggestion is at odds with a proposal being worked on by bureaucrats at the finance ministry who want the new government to reduce the deficit to as low as 3.8 per cent of GDP.

Panagariya asked the incoming administration not to be unduly worried about a small fiscal slippage and suggested it use the room to boost infrastructure spending.