The newly formed Prime Minister’s Economic Advisory Council (PMEAC) on Wednesday acknowledged a slowdown in the economy but felt the fiscal consolidation process should not be stymied.
Addressing reporters after the first meeting of the council, its chairman Bibek Debroy said: “There is a consensus (among members)… that the fiscal consolidation exercise should not be deviated from.” While Debroy didn’t elaborate, the council seemed to subtly hint any stimulus package that would dent fiscal discipline to prop up growth may not be wise at this point.
In a recent interview to Reuters, Niti Aayog vice-chairman Rajiv Kumar, however, had favoured offering extra stimulus by breaching the fiscal deficit target (3.2% of GDP for FY18), if required, to create space for more capital spending. Gross domestic product growth hit a 13-quarter low of 5.7% in Q1FY18, stoking calls for an urgent fixing of the economy.
Continued on Page 2However, between April and August, the government has already touched almost 96% of the full-year fiscal deficit target. This has severely squeezed the Centre’s ability to offer any worthwhile stimulus without fiscal expansion, especially when uncertainties continue over tax collection following the roll-out of the goods and services tax and non-tax revenues are subdued. The Centre has targeted trimming the fiscal deficit to 3% in FY19. The Centre’s ability to provide a stimulus to the economy is also constrained by the farm loan waivers announced by many states.
The council has identified 10 priority areas to boost economic growth and employment over the next six months, with greater last-mile connectivity. The themes are: Economic growth, employment and job creation, informal sector and integration, fiscal framework, monetary policy, public expenditure, institutions of economic governance, agriculture and animal husbandry, patterns of consumption and production, and social sector. The council will deliberate on the reasons for the economic slowdown and come up with suggestions.
Asked to elaborate on the nature of PMEAC’s focus on monetary policy when the monetary policy committee (MPC) of the Reserve Bank of India is already fixing the interest rates, Debroy said it will focus on monetary policy more from a “structural point of view” (such as the efficacy of such a policy) rather than asking the MPC to fix the key rates at certain levels. Seeking to dismiss any insinuation of the PMEAC undermining the role of the MPC, economist Surjit Bhalla, a member of the council, said even each of the 10 areas selected by the PMEAC has an administrative ministry or department.
Debroy added that the panel would hold consultations with a broad range of stakeholders within and outside the government to firm up reports to be submitted with the prime minister. He made it clear that while consultations with the finance and various other ministries and departments will be done, the council won’t push its recommendations to be included in the Budget, as that is not its job.
Apart from Debroy and Bhalla, the meeting was attended by members such as economists Rathin Roy and Ashima Goyal and member secretary Ratan P Watal. The chief economic adviser in the finance ministry, Arvind Subramanian, made a detailed presentation to the council on accelerating growth. The council will meet formally again next month.
Commenting on the International Monetary Fund’s downward revision of India growth forecast to 6.7% for FY18 from 7.2% predicted earlier, Roy said the multilateral body has been found to be wrong 80% of time in its projections.
The council also recognised the need for effective tracking of key economic parameters, through possible mechanisms for instituting an Economy Track Monitor, using lead indicators and triggers for action. It also agreed that specific issue papers will be brought out by members to address key concerns and linkages will be established with key national institutions.
The NK Singh-led FRBM committee has suggested the Centre maintain a fiscal deficit of 3% for three straight years starting FY18 itself and gradually reduce it to 2.5% by 2022-23. The panel’s report, however, is under examination by the finance ministry.