Govt should stick to existing fiscal consolidation: PM's Advisory council

The CSO in its latest forecast, has pegged GDP to grow at a rate of 7.2% for 2018-19

The Economic Advisory Council to the Prime Minister (EAC-PM) on Friday said the government should not deviate from the existing fiscal consolidation road map which requires the finance ministry to set a fiscal deficit target of 3.1 per cent of gross domestic product (GDP) for the upcoming year. The statement comes ahead of the interim Budget 2019-20, and at a time when there are also concerns about 2018-19’s target of 3.3 per cent of GDP.

In an official statement after a meeting of its members, the EAC-PM also said the GDP growth rate is expected to remain in the range of 7-7.5 per cent in the next few years and that it can be “easily” increased by 1 per cent by addressing structural problems through reforms.

The Central Statistics Office (CSO), in its latest forecast, has pegged GDP to grow at a rate of 7.2 per cent for 2018-19.

Sources aware of the deliberations within the EAC-PM told Business Standard that the panel’s inputs have not been sought in the preparations of the Budget.

“The EAC-PM strongly feels that there should be no deviation from the fiscal consolidation target but there must be continued emphasis on social sector intervention,” the advisory body said in its statement. “Amongst the challenges that need to be addressed are reforms in the agricultural sector, the MSME sector, skill development, credit issues, digital payments and banking sector reforms,” it said.

The upcoming Budget, to be presented by stand-in Finance Minister Piyush Goyal, is expected to contain a number of populist measures and announcements as the government gears up for the Lok Sabha elections, following setbacks in three state polls.

There could be a massive nationwide income support programme for farmers in the works, and could include free crop insurance as well. And, a commitment towards tax breaks and new slabs to benefit the salaried and middle classes if the government is re-elected to power, could be spelt out as well.

The panel noted that the macro-economic fundamentals of the economy are sound but challenges remain, several of which are structural in nature. “While the prospect for world economic growth does not look very promising, particularly in advanced economies, there is sufficient amount of growth momentum in emerging market economies.”

“India is not insulated from global developments, nevertheless, growth expected to be in the 7-7.5 per cent range in the next few years,” the EAC-PM said. The panel also discussed agricultural problems, investment trends, fiscal consolidation, interest rate management and credit and financial market issues during the meeting.

The Council felt that the exchange rate management of the rupee by the Reserve Bank of India has been sound despite the volatility in price of the crude oil, the release said. There are indications that financial savings have started going up and there is credit uptick through private banks to the services sector, it said.

The Council also felt that the challenge of insularity being seen in external trade should be reversed through supportive policy interventions because there is a positive turn in exports that are visible now.

The EAC-PM is an independent body set up to give advice on economic and related issues to the Government of India, specifically to the Prime Minister. It is headed by NITI Aayog member Bibek Debroy.
 

Other Observations: 

Growth to remain in 7-7.5% range in next few years
It can be increased by 1% if structural problems are addressed through reforms
Reforms in agri, MSME, skill development, credit issues, digital payments and banking sector are some of the challenges
Macro-economic fundamentals of economy are sound