Economists tell govt to increase spending

Economists and experts told Finance Minister Arun Jaitley, in pre-Budget consultations on Tuesday, to present an “out of the box” Budget, ensuring focus on heathcare, job creation and infrastructure.

Those present at the meeting were National Institute of Public Finance and Policy Director Rathin Roy (also a Business Standard columnist), Indian Institute of Management, Ahmedabad professor Ravindra Dholakia, Nomura Executive Director Sonal Verma, State Bank of India Chief Economic Advisor Soumya Kanti Ghosh, Ajit Ranade, Surjit Bhalla and others.

They also advised the government that the Budget should carry forward the work done through demonetisation and push for greater digitisation in the economy. 

The economists also told the government that the Budget should have a detailed list of the costs of demonetisation on all related activities such as printing of new notes, etc. They added that while demonetisation could check black money for the moment, it would not be able to stop the generation of black money in the future.

A finance ministry statement said, “So the next task should be to stop generation of black money in the future. For this, the government should incentivise people to move from the informal to the formal system and maximise the use of e-payments.”

“Some members felt that even after demonetisation, there is a strong case for boosting capital expenditure as public infrastructure in India is too low,” added the statement.

People aware of the discussions in the meeting, the economists also advised the FM to stop worrying about fiscal deficit targets and focus on increasing capital expenditure and social sector spending.

They added that despite years of effort to rein in fiscal deficit, the rating agencies the ratings agencies had not upgraded its long-term sovereign ratings. In such a scenario, and at a time when major developed and developing economies were increasing federal spending, India should do the same.

The focus of the Centre’s spending, said economists, should be on infrastructure, job creation, and the social sector. With private sector balance sheets still weak, the government would not only have to maintain its public spending spree, but maybe even increase it.

The fiscal deficit target for the financial year 2016-17 is at 3.5%. As reported earlier, Jaitley is likely to meet that target, thanks mostly to encouraging trends in direct and indirect taxes. The fiscal deficit for the coming years will be based on what the Fiscal Responsibility and Budget Management committee recommends to the government.