New Delhi:
The government should not opt for an “aggressive fiscal consolidation” in the forthcoming budget as global risks have not abated, Ashima Goyal, member of the RBI Monetary Policy Committee (MPC) said today.
Ashima Goyal went on to say that subsidies are expected to decrease as food and energy inflation eases. The WPI (Wholesale Price Index) inflation of food items was 1.07 percent in November, compared to 8.33 percent a month earlier. In the ‘fuel and power’ basket, inflation was 17.35 percent last month.
“Given fears of a global slowdown, now is not the time for aggressive consolidation. Sticking to small pre-announced steps on the path will minimize the sacrifice of growth while moderating demand and the current account deficit, helping to risk premium that keeps spreads high is reduced and increases the cost of government and private borrowing,” she told PTI.
India’s budget deficit, the gap between expenditures and revenues, is expected to fall from 6.71 percent in 2021-2022 to 6.4 percent in the current fiscal year at the end of March 2023.
The government has set a consolidation target of a budget deficit of less than 4.5 percent in FY26. Fiscal consolidation refers to ways and means of reducing the budget deficit.
Ashima Goyal was asked whether the finance minister should opt for fiscal consolidation or fiscal expansion in her upcoming budget.
Finance Minister Nirmala Sitharaman will present the EU budget for 2023-24 to parliament on 1 February.
The eminent economist said spending should be countercyclical and avoid the mistake made in the 2000s when spending rose with tax revenue.
“Well-integrated components of the current macroeconomic policy strategy have delivered results and should continue as global risks have not abated,” she said.
According to Ashima Goyal, the strategy includes prioritizing investments while providing vital support to the vulnerable.
“Better composition of government spending and other supply-side measures have enabled excellent monetary-fiscal coordination that has strengthened Indian macros,” she said.
While noting that debt ratios fell sharply last year amid higher growth, she said institutions and incentives need to be strengthened to help implement the strategy sustainably, including in states.
According to the International Monetary Fund (IMF), more than a third of the global economy will contract by 2023, while the three largest economies – the United States, the European Union and China – will continue to stagnate.
Earlier this month, the RBI revised its GDP growth forecast for FY23 down to 6.8 percent from the previous 7 percent, while the World Bank revised it up to 6.9 percent, saying the economy is improving. withstand global shocks.
When asked about taxing farm income, she said: “I am in favor of moving to a fair and compliance-friendly regime of low taxes on a larger basis, which would require exemptions to be reduced, along with more intensive data mining to prevent the use of exemptions to evade taxes. .” Responding to a question about the decision of some opposition-ruled states to switch to the old pension scheme (OPS), Ashima Goyal said that returning to the old pension scheme means that liabilities are passed on to future governments.
“We need more transparency in budgets, clearly showing the current and future funding needs of each new program and indicating funding sources,” she stressed.
Ashima Goyal noted that governments must pay high interest on debts that eat up a large portion of revenue, and suggested that governments borrow only for productive expenditures that generate enough taxes and other revenues so that they can be paid back.
The OPS, in which the entire pension amount was given by the government, was discontinued in 2003 by the NDA government on April 1, 2004.
Under the new pension plan, employees contribute 10 percent of their base salary to the pension, while the state government contributes 14 percent.
Two Congress-ruled states, Rajasthan and Chhattisgarh, have already decided to implement OPS. Jharkhand has also decided to return to OPS, while Aam Aadmi Party-ruled Punjab has recently approved the re-implementation of OPS.
When asked why the RBI was unable to control inflation for 10 consecutive months, Ashima Goyal pointed out that these 10 months coincided with the war in Ukraine which pushed up international energy and food prices, to which India is particularly sensitive, and this followed the pandemic, which also drove global commodity prices as supply chains grumbled.
“A flexible inflation-targeting policy must withstand temporary supply shocks, but once it became clear that supply-side inflation would continually exceed the tolerance margin, repo rates were increased within six months to raise ex-ante real interest rates. This was positive,” she said.
Supply-side measures have also contributed, according to Ashima Goyal, and inflation is already within tolerance without harming the nascent growth recovery. “India has absorbed the shocks better than most major economies,” she claimed.
The central bank has been instructed by the government to ensure that retail inflation remains within the 2-6 percent range.
Inflation pressures for November fell below 6 percent for the first time in 10 months, within the tolerance range.
(Except for the headline, this story has not been edited by DailyExpertNews staff and is being published from a syndicated feed.)
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