EAC-PM advises against any deviation from fiscal targetshttps://indianexpress.com/article/business/economy/eac-pm-advises-against-any-deviation-from-fiscal-targets-5555634/

EAC-PM advises against any deviation from fiscal targets

Amongst the challenges that need to be addressed are reforms in the agricultural sector, the MSME sector, skill development, credit issues, digital payments and the banking sector reforms.

EAC-PM advises against any deviation from fiscal targets
The government and the RBI should be complimented for sound macroeconomic management, and this trend should be continued with,” according to a statement issued after the meeting.

India’s economic growth is expected to remain in the 7-7.5 per cent range in the next few years, the Economic Advisory Council to the Prime Minister (EAC-PM) said Friday. Even as it cautioned against the government deviating from its fiscal consolidation target, the panel noted in its meeting ahead of next week’s budget that the country’s growth rate “can be easily increased” by 1 per cent by addressing structural problems through reforms. The Central Statistics Office (CSO), in its latest forecast, had pegged the growth at 7.2 per cent for 2018-19.

A meeting of the six-member Council, consisting of economist Bibek Debroy (chairman), members Rathin Roy, Ashima Goyal, Shamika Ravi and member secretary Ratan P Watal, was held. “The EAC-PM strongly feels that there should be no deviation from the fiscal consolidation target and but there must be continued emphasis on social sector intervention.

Amongst the challenges that need to be addressed are reforms in the agricultural sector, the MSME sector, skill development, credit issues, digital payments and the banking sector reforms. The government and the RBI should be complimented for sound macroeconomic management, and this trend should be continued with,” according to a statement issued after the meeting.

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MSME sops, farm package to weaken govt’s fiscal position

While advocating that there should be no deviation from the fiscal consolidation target, the PM’s top economic advisory panel does well to highlight the structural reforms that need to be undertaken. The panel’s cautionary advice on the deficit comes at a time when rating agency Moody’s has forecast India’s 2018-19 fiscal deficit slipping to 3.4 per cent of GDP from the budgeted 3.3 per cent. A farm package, alongside fresh sops for small enterprises, will make it harder for the Centre to achieve its fiscal consolidation target, given that new revenue-boosting measures remain absent.

While endorsing that the macro-economic fundamentals of the economy are sound, the Council admitted that “challenges remain, several of which are structural in nature”. While the prospects for world economic growth does not look very promising, particularly in the advanced economics, there is sufficient amount of growth momentum in emerging market economies. “India is not insulated from global developments. Nevertheless, India’s growth is expected to be in the 7-7.5 per cent range in the next few years; one of the fastest in the world. However, with reforms designed to address the structural problems, growth rates can easily be enhanced by at least 1 per cent,” it said.

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Global rating agency Moody’s Friday forecast India’s 2018-19 fiscal deficit at 3.4 per cent of GDP from the budgeted 3.3 per cent. It cautioned that a farm package, widely expected to be announced as part of the budget, could lead to further deviation from the fiscal consolidation roadmap, which is expected to come down to 3 per cent by 2020 as per the government’s fiscal glide map. According to the rating agency, the government’s sops for small enterprises and low-income households will make it harder for the Centre to achieve its fiscal consolidation target, given that new revenue-boosting measures remain absent.

Amongst the issues discussed by the EAC-PM were agricultural problem, investment trends (including investments by states consequent to the devolution of the 14th Finance Commission), fiscal consolidation, interest rate management and credit and financial market issues. The Council felt that the exchange rate management of the rupee by the RBI has been sound despite the volatility in the price of crude oil. “The good news is that oil intensity (use of fossil as a percentage of GDP) is showing a declining trend,” it said.

There are indications that financial savings have started going up and there is credit up tick through private banks to the services sector, it said, noting that the reforms in the financial sector should be strengthened further building upon what the Government is already doing.

The Council felt that the challenge of insularity being seen in external trade should be reversed through supportive policy interventions because there is a positive turn in exports that are now visible. The challenges in the agricultural sector should be addressed by looking closely at credit flows and support to employment programmes like MNREGA.