Govt should prefer growth to fiscal consolidation: Former RBI Governor C Rangarajan – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/economy/policy/govt-should-prefer-growth-to-fiscal-consolidation-ranga/articleshow/80202374.cms?utm_source=ETTopNews&utm_medium=HPTN&utm_campaign=AL1&utm_content=23Synopsis

Rangarajan pegged the fiscal deficit for the current year at 6-7% of gross domestic product against the government’s target of 3.5%, adding that it would have to be maintained in FY22 as well, with a fresh fiscal consolidation road map.

NEW DELHI: Former central bank governor C Rangarajan has said the government should prioritise growth over fiscal consolidation in the upcoming budget and accept an elevated deficit to restore the economy to FY20 levels.

“I think that a growth rate of 8-9% is absolutely essential in 2021-22 and that should be the guiding principle for the budget,” Rangarajan told ET about measures needed in the budget to put the pandemic-battered economy back on the growth path.

Rangarajan pegged the fiscal deficit for the current year at 6-7% of gross domestic product against the government’s target of 3.5%, adding that it would have to be maintained in FY22 as well, with a fresh fiscal consolidation road map.

“My estimate is that the decline during FY21 will be 8%. Therefore, if you have to compensate for it, growth has to be a little more than 8% because you’re coming from a lower base,” Rangarajan said.

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Government expenditure will be critical in the coming year and should be maintained at FY21 budgeted levels, at the very least, Rangarajan said.

“It appears that the government has not been pushing expenditure very much. The sub-sector, which we call public administration, defence and other services, was negative,” he said, citing official second-quarter figures that showed a 12.2% fall in the sub-sector.

The spending push will have to be financed through a mix of borrowing, strategic privatisation and monetisation of assets, given that the Centre’s tax revenue is likely to remain muted, according to M Govinda Rao, former member of PM’s Economic Advisory Council chaired by Rangarajan.

Rangarajan called for an emphasis on capital expenditure, stating, “A clear indication of the total capital expenditure by the government and public sector enterprises should be presented in the budget.”

No further concessions should be provided in terms of corporate tax because those that were given as part of the pandemic relief and earlier would take effect in FY22, according to Rangarajan.

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