Budget 2019: The finance minister should not be bogged down by the concern of breaching the fiscal deficit target and push growth-oriented policies, says Dr Charan Singh, Chief Executive of EGROW Foundation, a Noida-based think tank.
Budget 2019: As the finance ministry officials burn the midnight oil preparing Budget documents, anticipation is growing on whether Finance Minister Arun Jaitley will manage to meet his fiscal deficit target of 3.3% set in last year’s Budget. The opinion is divided on this vexed issue with economists taking divergent positions. The finance minister should not be bogged down by the concern of breaching the fiscal deficit target and push growth-oriented policies, says Dr Charan Singh, Chief Executive of EGROW Foundation, a Noida-based think tank. It is essential for India to focus on education, healthcare and employment generation rather than sticking to targets, says Dr Singh, a former senior economist at IMF and former RBI chair at IIM Bangalore. Excerpts of an interview with Financial Express Online:
Q: Will the finance minister manage to meet the fiscal deficit target set in last year’s Budget?
A: I am confident that Mr Jaitley will be able to meet his fiscal deficit target for the current year as the revenue collections are looking robust. Revenue mopup will further improve in the January-March quarter, so here is no reason for concern.
Q: Why is it important for India to stick to fiscal deficit target?
A: The finance minister should not be bothered about fiscal deficit target, if he is required to push economic growth. He should not worry If the funds are used for employment creation, healthcare, education and building infrastructure facilities. The idea of containing fiscal deficit to 3% of the GDP is a European idea born out of the Maastricht Treaty. There are countries that do not stick to 3% fiscal deficit and they have not faced fiscal problems. On the other hand, there are several countries facing fiscal problems despite sticking to the target. India should not worry about maintaining fiscal deficit at 3, 4 or 5% of the GDP. Given the demographic profile the country has, it should focus on job creation, education and healthcare rather than chasing such western ideas.
Q: Indian Parliament has set a target for the executive under the FRBM Act to progressively bring it down. And will it not impact the chances of an improvement in India’s sovereign rating?
A: The targets set under the FRBM Act can be breached if there are cogent reasons. The government can relax it by assigning reasons if the circumstances so demand. The rating agencies should realise that India is the fastest growing major economy in the world, it has a functional democracy, it has rule of law and an active judiciary as well as a sound track record of fiscal management. These agencies should take into account all these factors while deciding on India’s investment ratings.
Q: You said increased borrowings are fine if it is done to fund growth. However, Rs 5.8 lakh crore out of Rs. 6.24 lakh crore borrowing plan announced by Mr Jaitley last year was meant for interest payments, in such a situation, can we say that the government was borrowing to finance growth?
A: It is true that a big part of the government borrowings goes into debt servicing and interest payments. However, India does not have a large external debt so this interest payment goes back into the domestic economy. These payments go back to institutional lenders like public sector banks and insurance companies that reinvest it, and it also goes back into system by way of interest payments to small savings account holders. This huge interest payment outgo supports growth and it is not bad for economy.