While public expenditure would boost near-term growth, a credible medium-term fiscal consolidation path would be a positive for investors and rating agencies looking at the Indian economy, felt a panel of experts at a virtual conference hosted by the National Council for Applied Economic Research on Wednesday.
“Profits are recovering faster than wages, capital is recovering faster than labour, upper-income groups have fared much better than lower-income groups, this has implications for not just income inequality but for steady state demand, this K-shaped recovery,” said Sajjid Chinoy, chief India economist at JP Morgan.
Finance minister Nirmala Sitharaman will present the Budget on February 1.
Chinoy pushed for “expansionary consolidation” which involved government expenditure increasing faster than nominal gross domestic product in fiscal 2022, to maintain growth of the expenditure-GDP ratio.
This would lead to consolidation of the deficit in the medium term through higher growth, if the spending was directed at infrastructure, health and education, thereby creating jobs to sustain high growth, the part-time member of the Prime Minister’s Economic Advisory Council said.
“Given the uneven K-shaped recovery, we don’t need an across-the-board fiscal stimulus; what we need is a more targeted support,” said Sonal Varma, chief India economist at Nomura.
According to Varma, small and medium enterprises, unorganised sector workers and contact-intensive sectors like tourism and hospitality were still in need of fiscal support.
To meet these objectives, Varma suggested higher allocation to the rural employment guarantee scheme and a cost burden sharing scheme targeted at the hospitality sector.
“A government programme which brings together income support along with strong infrastructure investment is the Pradhan Mantri Gram Sadak Yojana,” said Sudipto Mundle, who was a member of the 14th Finance Commission, suggesting a way the government could target its twin objectives of income support and infrastructure spending in the upcoming Budget.
To finance the added expenditure, Mundle called for an aggressive programme to sell public sector assets. “…the stock market has been very buoyant. It is a very good time to sell and that is what the government needs to get the deficit down and the expenditure up,” Mundle added.