Don’t leave everything to the RBI is Duvvuri Subbarao’s Budget tip to Nirmala Sitharaman – The Economic Times

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In an interview with ET Now, former RBI governor Duvvuri Subbarao, emphasised on the need for the government to loosen its purse strings and meet the RBI’s fiscal policy with adequate fiscal measures, instead of leaving the central bank to do most of the heavy lifting.



WorldIndiaAusterity is the not the solution for an economy that steps into a new year soaked in red ink. 2021 is believed to begin on a good note as the low base of GDP growth in lockdown-hit Q1 of 2020 — a massive shrinkage of 23.9% — will help India put out a better Q1 number in 2021. But that’s where the real test begins.

In an interview with ET Now, former RBI governor Duvvuri Subbarao, emphasised on the need for the government to loosen its purse strings more and meet the RBI’s ample monetary policies with adequate fiscal measures, instead of leaving the central bank to do all the heavy-lifting.

“In India, the burden has fallen disproportionately on the Reserve Bank and the government has not done its share,” Subbarao said, saying that even though the fiscal deficit, which is budgeted at 3.5%, may double to 7% or perhaps even higher, not much of that has gone to make up for the revenue lost and very little has been budgeted by way of fiscal spending — just about 2%.

Finance Minister Nirmala Sitharaman has however allayed fears, saying the government will not worry about its budget deficit target and will ramp up spending to support the economy. “There is a clear need for me to spend the money,” Sitharaman said.

The government has been concerned about fiscal sustainability, according to Subbarao, “but whatever the government has spent, it has spent wisely on supporting MGNREGA, the employment guaranteed scheme, and on supporting medium and small industries which have been worst hit by this crisis and to some extent in supporting health infrastructure.”

Prime Minister Modi, last month, had expanded coronavirus support measures to Rs 30 lakh crore, or 15% of GDP, to rescue firms and save jobs lost, adding to global stimulus that has touched $12 trillion.

Looking at the upcoming Budget, Subbarao advised that the best way forward for the government would be to spend more on livelihood support by way of MGNREGA, and spend more on supporting infrastructure to help lay the foundation for medium term growth.”

In the next budget, the government needs to loosen the fiscal strings more than they have done this time around in this year.

Curbs imposed by North Block on more than 80 government departments and ministries earlier in the year were relaxed this quarter. Sitharaman has also said she will push state firms to accelerate spending.

To accommodate the government’s spending plans, this year’s Budget may also be increased from its current $407 billion, a Bloomberg report quoted sources saying.

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