The Hindu Business Line : ‘Poll year spend could land Govt in a spot’

Thiruvananthapuram, July 31 Leading economists believe that profligate spending by the Government to support welfare schemes during an election year could put paid to hopes of reining in the runaway fiscal spiral.

The borrowing programme it entails is a challenge to contend with in the medium term, according to Mr Ananda Bhoumik, Senior Director, Fitch Ratings India.

In the short-term, the Sixth Pay Commission proposals and the festive season ahead could occasion some loosening of purse strings but only subject to the limited play dictated by the dearer money.

According to Mr Amar Ambani, Vice-President-Research, India Infoline, repo rate hike by 50 bps was way above expectations. The worst case scenario was a projected 25-bps hike.

There was a case for a ‘wait and watch’ approach given that crude was off its highs and inflation up-ticks had receded in recent times. But with elections not far away, the Government’s focus is on inflation control even at the cost of growth.

Mr Abheek Barua, Chief Economist, HDFC Bank, said that the fiscal expansion adds to the complexity of the issue sending positive demand impulses into the system.

This triggers a monetary response to curb the ‘consumption stimulus.’ This is what the RBI has sought to achieve, even if that required calling upon banks to mend their lending ways.

Supply-side constraints and enhanced money supply had combined to stoke inflationary flares, according to Mr Dharmakirti Joshi, Principal Economist, Crisil.

Fiscal expansionism is something the Centre can indulge in an election year, but not the RBI, he said. This paradox with larger implications for the economy is something we should learn to live with.

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