Case for fiscal stimulus

Niti Aayog vice-chairman Rajiv Kumar has pitched for fiscal sops to boost growth with a rider that additional money should be used for capital expenditure and for increasing productivity.

  • Published 17.10.17
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New Delhi: Niti Aayog vice-chairman Rajiv Kumar has pitched for fiscal sops to boost growth with a rider that additional money should be used for capital expenditure and for increasing productivity.

Faced with slowing economic growth, industry has been clamouring for a stimulus package from the government.

"I do see a case for stimulus," Kumar told PTI in an interview. He added, however, that additional expenditure should be used judiciously.

Finance minister Arun Jaitley on Sunday said he had not promised any fiscal stimulus, but would respond to the emerging situation.

"I have not used that phrase (fiscal stimulus). I said, we will respond to situations and your fraternity translated the word as meaning stimulus. So you are the ones who should be answering and not me," the minister told reporters in Washington on Sunday in response to a question.

Jaitley's remarks followed increased speculation over a possible fiscal stimulus that can go above Rs 40,000 crore after six successive quarters of dip in growth, which slid to a three-year low of 5.7 per cent in the April-June quarter.

The finance ministry has pegged the fiscal deficit target for 2017-18 at 3.2 per cent of GDP and 3 per cent for the following year. Any fiscal stimulus to boost growth would push up the fiscal deficit.

Various experts have argued against fiscal stimulus as it would jeopardise the fiscal consolidation programme.

"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 a wrong signal," Kumar said. PTI

"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."

Kumar further noted "Only issue then is, can you absorb stimulus productively."

"Stimulus money should be used on increasing investment, increasing demand and improving physical and rural infrastructure."

The newly constituted Economic Advisory Council to the Prime Minister (EAC-PM) wants the government to stick to its fiscal consolidation road map and has suggested that stimulus to the industry should not be at the cost of fiscal prudence.

Chairman of the EAC-PM Bibek Debroy had recently said, "There is a consensus (among the members)... that the fiscal consolidation exercise should not be deviated."

The Reserve Bank had also cautioned the government against a stimulus package to revive the sagging growth, arguing that breaching the fiscal deficit target will fire up inflation and hurt long-term macroeconomic stability. PTI

As of August end, the government has already run up 96.1 per cent of its fiscal deficit targets for the financial year 2017-18 as it has advanced spending on core infra sectors like roads, ports and railways.

Brokerage firm Nomura has warned that the present macro problems are due to higher spending, not a lack of that. It has also argued that they are not due to low revenue receipts either, hence a pump priming may be counterproductive this time around.

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