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  1. Modi’s tightrope walk on fiscal stimulus: It’s EAC vs NITI Aayog; Surjit Bhalla says no, Rajiv Kumar says yes

Modi’s tightrope walk on fiscal stimulus: It’s EAC vs NITI Aayog; Surjit Bhalla says no, Rajiv Kumar says yes

While NITI Aayog vice-chairman Rajiv Kumar has said that he sees a case for fiscal stimulus, Prime Minister Narendra Modi's handpicked economist Surjit Bhalla of Economic Advisory Council, on the contrary, advised against it.

By: | Updated: October 17, 2017 11:50 AM
“Indian economy does not need a quick fix,” Surjit Bhalla said in an interview with CNBC-TV18.

While NITI Aayog vice-chairman Rajiv Kumar has said that he sees a case for fiscal stimulus, Prime Minister Narendra Modi’s handpicked economist Surjit Bhalla of Economic Advisory Council, on the contrary, advised against it. “Indian economy does not need a quick fix…. The government should stay with 3.2% fiscal deficit target,” Surjit Bhalla said in an interview with CNBC-TV18.

The EAC headed by Bibek Debroy also rejeted fiscal stimulus to aid the economic growth. “The fiscal consolidation exercise should not be deviated from,” he said after the after the first meeting of the EAC last week. Surjit Bhalla, once again, said that to boost India’s economic growth, there’s one solution and that is lowering the interest rates. “One culprit, most important culprit is interest rates,” he said, adding, “There has been deceleration for five quarters and a large part of the deceleration is accounted for by the rise in real interest rates.”

“Inflation declined 700 basis points since 2013; interest rates by 200, it does not take a mathematical genius to understand that,” Surjit Bhalla said who, in the past, also shifted the onus to the Reserve Bank of India to boost the economic growth by lowering the interest rates.

However, NITI Aayog’s Rajiv Kumar, in an interview with PTI, made a strong case for well-planned fiscal stimulus. “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 the wrong signal,” Rajiv Kumar said. “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.”

Rajiv Kumar, too, wanted the RBI to cut rates during its monetary policy meeting earlier this month estimating fall in CPI inflation post monsoon. The RBI, however, kept the repo rate unchanged with an aim to limit the medium-term target for consumer price index (CPI) inflation of 4% within a band of plus/minus 2%. Although, the September inflation declined to 3.28%, down from previous month’s 3.36%, as anticipated by Rajiv Kumar.

Meanwhile, Finance Minister Arun Jaitley has clarified that he never used the phrase (fiscal stimulus), rather had said the government will respond to situations. The fiscal deifict, in the first five months (April-August) of the current fiscal, touched 96.1% of the Budget estimates at Rs 5.25 lakh crore. The government had aimed to restrict the deficit to 3.2% of GDP in the current fiscal as against 3.5% in 2016-17. In absolute terms, 3.2% deficit for the current fiscal works out to nearly Rs 5.47 crore.

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