Economists expects from Budget 2015 to step up public spending
NEW DELHI:Economists want PM Modi to step up public spending. The idea that public spending needs to be increased had been mooted by chief economic advisor Arvind Subramanian in the mid-year review of the economy released in December. He argued that the stressed private sector was not in a position to invest and the government needed to step in.But economists also sounded a note of caution, saying any enhancement in expenditure should not be frittered away on revenue spending and instead be directed in a focused manner toward capital spending, said two persons aware of the deliberations.
India needs to unleash public spending urgently without worrying too much about what the credit-rating agencies might think about the government veering off the road to fiscal consolidation— that’s the advice economists gave Prime Minister Narendra Modi and Finance Minister Arun Jaitley on Friday, three weeks before the budget is to be unveiled in Parliament.
The administration is increasingly convinced that sticking to the fiscal deficit target over the next few years is almost an article of faith — 4.1% of GDP in FY15, 3.6% in the next year and 3% in the one after that. Jaitley, who will present the budget on February 28, reiterated as much at a separate event on Friday. Meeting fiscal targets could fetch greater dividends though a credit rating upgrade and further reduction in interest rates, is the latest government thinking.
But in the meeting in New Delhi held under the aegis of the Arvind Panagariya-led Niti Aayog, a number of economists asked the Modi government to step up public spending by readjusting the fiscal road map. The suggestion may create a policy dilemma for the government this close to the budget. “The whole concept of spending beyond your means and leaving the next generation in debt to repay what we are overspending today is never a prudent fiscal policy,” Jaitley said by videoconference in an address to a seminar on making Mumbai a global financial hub on Friday.
This didn’t mean that the government would neglect development spending but would seek to innovate. “We will now have to enter a new age where all models of financing… infrastructure will have to be explored. A particular model can be created,” Jaitley said.
Shifting the milestones established by Jaitley as part of a medium-term fiscal plan in July would mean pushing the 3% milestone beyond FY17. Jaitley had stuck to the target of 4.1% of GDP for FY15 despite clamour from many quarters ahead of the budget, including Niti Aayog vice-chairman Panagariya, that the government should pause fiscal consolidation.
Apart from Panagariya, the Friday meeting was attended by two full-time Niti Aayog members, Bibek Debroy and VK Saraswat, and its CEO Sindhushre Khullar. Also present were Jaitley, planning minister Rao Inderjit Singh, chief economic advisor Subramanian and cabinet secretary Ajit Seth.
The latest data showed fixed capital formation rose only 3% in FY14 after contracting 0.3% in the year before. The argument against fiscal expansion is that credit-rating agencies would take a negative view of this and it could also delay monetary easing.
Stating the Aayog is also a thinktank, Jaitley said the suggestions were mainly related to the highgrowth road map for the Indian economy. The Niti Aayog has replaced the Planning Commission.
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Source:Economictimes
