Finance Secretary TV Somanathan said today that Indian economy had good in-built resilience against external shocks in the short term, but for the long term, fiscal conservatism is necessary. 

In a conversation with Raghuvir Srinivasan, Editor, businessline, at a ‘Breakfast with Business Line’ event organized by this newspaper in Chennai today, Somanathan said that India had managed to grow despite “exogenous” factors in three years – the Covid-19 pandemic’s first and second waves in 2020 and 2021 and the Ukraine war in 2022.  

Taking up this point during the ‘question and answer’ session, R Seshasayee, former Chairman of Ashok Leyland and a former President of the Confederation of the Indian Industry, wondered if India might have expended all its “reserve energy” and hence may not be able to take another external shock. He asked Somanathan if it was not necessary to build resilience in the economy (implying, preference for reducing fiscal deficit to growth). 

In response, Somanathan said that India had built sufficient resilience for the short term, in the form of good foreign exchange reserves, food stocks and oil reserves. Foreign exchange reserves are good, though not “massive”, he said, “especially in the context of what might flow out.” 

However, for the long term, he agreed with Seshasayee that fiscal deficit must be brought down. But he posed whether that is best done by “constraining the numerator” (expenditure) or growing the denominator (GDP). “We have attempted a balance between the two,” he said, noting that there was a commitment to bring the fiscal deficit to 4.5 per cent of GDP by 2025-26.