In an exclusive interview with CNBC-TV18, Chief Economic Advisor (CEA) K Subramanian has hinted at a possible fiscal recalibration to aid economic revival in the short-term.
The CEA in the interview also stressed that macroeconomy is a delicate balancing act and pointed out that the mega dividend from the RBI and aggressive divestment will help the government keep its eyes on the fiscal deficit.
India is likely to miss its fiscal deficit target of 3.3 percent of gross domestic product for the current financial year by 30-50 basis points, two sources told Reuters, due to the sharp slowdown in the economy that has severely crimped tax collection goals.
The government is now trying to cap the fiscal deficit for 2019/20 at 3.8 percent of GDP from the target set during the budget presented in July, according to the two North Block officials.
The government is also likely to defer lowering the fiscal deficit to 3 percent of GDP by a year to 2021/22, the same officials added.
Here is an edited excerpt of the CEA's interview:
Q. Will you be able to stick to the fiscal deficit target?
A. If you look at the actions that the government has taken, right now the priority clearly is that we are taking all the necessary steps to be able to get back on the high growth path. That is an important aspect at this point in time. That said, the macroeconomy is always a delicate balancing act. Therefore while keeping the impetus on growth, there are other steps, for example, disinvestment. The extraordinary dividend that has come from the Reserve Bank will also help in making sure that we keep our eyes on the fiscal deficit but I would say that at this point in time the recognition is there that we need to do all that it takes to bring the economy back on the high growth path
Q. But lower nominal GDP will make it extremely challenging to stick to the fiscal glide path.
A. That is the delicate balancing act that one has to do. At different points in time, over short periods, priorities have to actually be dynamically looked at.As I have already highlighted, at this point in time, growth remains actually most important.
Q. So we can say you will let go of deficit target for growth if required?
A. It’s a delicate balancing act and we remain cognisant of getting that balance right. But at different points in time, for short periods, we would emphasise differently. As I have already said, steps are being taken on the non-tax front to emphasise as much as we remain somewhere ballpark.