Global observers of the Indian economy have argued that a rapid consolidation of India’s fiscal policy may not be the right way forward and that only a gradual path needs to be taken to ensure much higher growth. expectations to.
While they agreed on sustained incomes and a growth-boosting pace of recovery, they said reviving lost jobs could be complicated and will require concerted efforts in areas needing support, especially the construction sector. .
They were part of a panel that discussed the future of India’s fiscal and monetary policy and its implications for growth, at a conference hosted by the Confederation of Indian Industry, a group of industry pressure.
Sudipto Mundle, Distinguished Member of the National Council for Applied Economic Research, Taimur Baig, Managing Director (MD) and Chief Economist at DBS Bank, Sajjid Z Chinoy, Chief Indian Economist at JP Morgan, and Neelkanth Mishra, MD and co- Head of Asia-Pacific Strategy and the Indian strategist from Credit Suisse were among the distinguished panel.
Chinoy and Mishra both serve on the Prime Minister’s Economic Advisory Council as part-time members.
Shankar Acharya, former chief economic adviser and member of the 12th Finance Committee moderated the dialogue.
Economists expect a budget deficit of close to 6% in 2022-2023. All spoke of the critical situation of the informal sector and the need to reverse the losses to revive secular employment and consumption in the economy.
“There have been scars in the informal sector. As a result, consumption levels have stagnated. The marginal propensity to consume – how many people spend for each additional rupee earned – has been affected, ”Sudipto Mundle said.
Supply chain disruptions have a lot to do with the underperforming informal sector, he added.
Baig said the accelerated formalization has had collateral damage on small businesses, which are not equipped to handle it.
This resulted in significant scarring. Fiscal policy should take these areas of the economy into account, he said.
“In the long run, formalization will improve the business environment. But done in a hurry, it erodes the tax base and harms the tax authorities, rather than helping them, ”Baig said.
On monetary policy, they said the move should now be to push real interest rates into positive territory.
“The Reserve Bank of India should seek to narrow the political corridor at a gradual pace, so that real interest rates stop being negative,” Chinoy said.
Mundle said much of the bulk of the work was done by the central bank during the period of deep distress. Now that core inflation is at the high end of the range and the United States has started to cut its bond purchases, India’s monetary policy should consider raising interest rates.
“The bulk of the work now remains to be done at the fiscal level. In that regard, the dynamic revenues this year have been a relief, ”added Mundle.
Mishra remained the most optimistic and suggested that actual growth figures in successive years could be in the range of 9-10 percent, down from nearly 7 percent of consensus.
But he also said parts of the economy are still struggling and need to be recognized. Many of the job losses still to be recovered are in the service sector.
Even if these jobs return, their household balance sheets are shattered and they will take time to recover. Fixing them early should be a fiscal policy priority, Mishra said.
The silver lining could be the nascent construction sector, but in full revival. After a brief eight-year period of stable nominal output growth in the sector, indications are such that they have now started to change, he said.
Speaking of fiscal consolidation, Chinoy said there is a need to reduce the primary deficit and reduce the pressure on the debt. But the process shouldn’t be too quick, he warned. Such a rapid tightening of fiscal policy has in the past stifled the growth potential of advanced economies.
Mundle mentioned that while sustained spending will solve the growth problem, it might not save us from the jobs problem. For this, growth rates must be above 7%, he added.