Finance Minister Arun Jaitley on Wednesday held detailed discussions with leading economists over the pros and cons of fiscal consolidation vis-à-vis continued public spending in 2016-17.
Sources said economists were divided on the issue with some suggesting a continued relaxation in fiscal targets for higher public spending, while others advocated adherence to the fiscal consolidation targets.
“There can be some deviation in the fiscal deficit but one has to adhere to it in the medium term,” said S Mahendra Dev, Director, Indira Gandhi Institute of Development Research (IGIDR), after the meeting, which lasted for over two-and-a-half hours. The Mid-Year Economic Review 2015-16, that was tabled in Parliament last month, had thrown open the debate over returning to the fiscal consolidation targets next fiscal or continuing the focus on public spending in order to boost growth as the economy would continue facing tough times in 2016-17 as well.
After relaxing its fiscal deficit target to 3.9 per cent in 2015-16, the government’s medium-term fiscal consolidation plan projects the deficit target at 3.5 per cent in 2016-17. Many economists also noted that the government should not only depend on the low global oil prices. “It can increase the public spending but crude oil prices may increase in the future. The expenditure must be on capital formation but revenue deficit needs to be trimmed,” said an economist, who did not wish to be named.
Taxation regime “The Finance Minister and his economists were extremely open on all aspects of the discussions,” said Pulapre Balakrishnan, Professor of Economics at Ashoka University, adding that the discussions also focussed on the current taxation and subsidy regime and how it can be transformed. Dev said economists also called for a push to agriculture and the rural sectors and made suggestions for improving productivity, especially after the poor monsoon.
Improvement in manufacturing and employment generation were also highlighted as key priorities for the government. Sajjid Chinoy, Chief India Economist, JP Morgan, and Ajit Ranade, Chief Economist, Aditya Birla Group, were among those who attended the meeting.