The Centre’s adherence to the fiscal consolidation path indicates the commitment to the medium-term glide path, which the rating agencies should take note of, Chief Economic Advisor V Anantha Nageswaran said. Exports are facing a difficult global environment, Nageswaran told Prasanta Sahu. Edited excerpts.
Will fiscal consolidation lead to lower inflation and interest rates?
Will it necessarily lead to lower inflation? I will say the answer is yes. Should that lead to lower interest rates? Possibly, yes. But, this is not an expectation or a prediction of monetary policy. I don’t answer questions on monetary policy. You already saw there is a reaction in the treasury bond yields, they dropped by 15 basis points.
How do you see external headwinds to exports?
We know that merchandise exports jumped after the Covid, in 2021-22. The numbers have been kind of hovering around that level, it’s not growing, not coming down. The services sector surplus is growing. We are probably close to achieving some $800 billion of trade this year in terms of exports, both merchandise and services exports. It is a difficult environment because of higher interest rates in the developed world leading to lower growth coming year, and so on.
Rating agencies flagging high public debt in India getting a rating upgrade…
We are showing that we are committed to bringing down the fiscal deficit. They said it would be challenging to bring down the fiscal deficit to 4.5% by FY26. We’re showing that we are committed to bringing it down.
Are the stable budgets for the last few years giving confidence to foreign investors, especially for FDI?
FDI is a function of many factors, not just the government of India’s policies, although it definitely matters. There are levels of interest rates in that country that will also matter to them. That is why, globally FDI flows came down in 2022-2023. So FDI flows are a function of many things. Whatever we can do, we are doing. If you look at the UNCTAD report, in terms of greenfield announcements of anticipated FDI, India is very much on top of the list of many investors.