The government can cut down its subsidy bill by up to 1 per cent of the GDP without causing much pain to people, Principal Economic Adviser, Ministry of Finance, Ila Patnaik said on Tuesday.

“I don’t think it is (fiscal consolidation) that hard, because when you look at many of the schemes, you have the spending, you have the leakages,” Patnaik said at a book launch at a FICCI event.

“You have subsidies...many of which are distortionary, many of which are not well targeted. If there is a political will then one can easily cut down (subsidy) by 1 per cent of GDP without actually bringing a lot of pain to people,” she added.

However, she said, fiscal consolidation is a difficult task on the face of an economic slowdown and high inflation, yet it is not hard to carry out.

Patnaik was of the view that emerging economies witness a growth cycle which still needs to be understood in the Indian policy making.

Contributing a chapter in the book titled ‘Getting India Bank on Tracks: An Action Agenda for Reforms’, Patnaik said that macroeconomic and financial stability in India is suspect, as the institutional machinery for macroeconomics and finance in India is grossly out of touch with the requirements of today’s economy.

“Volatility is an integral part of the market economy and should not be shunned in and of itself. However, extreme fluctuations in macroeconomics and finance can damage long-run trend GDP growth.

“To address these problems, sound machinery for fiscal and monetary policy needs to be established. Until this is done, India will continue to lurch from one crisis to the next,” she said in the book.

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