Budget 2019: Focus On GDP Growth, Fiscal Deficit Will Take Care Of Itself, Says Jerome Levy MD
The only way you can really solve the deficit problem is by having the economy grow robustly, says Srinivas Thiruvadanthai.
Robust economic growth will keep India’s fiscal deficit in check, according to Srinivas Thiruvadanthai, managing director and director (research) at Jerome Levy Forecasting Center.
“The only way you can really solve the fiscal deficit problem is by having the economy grow robustly,” Thiruvadanthai told BloombergQuint. “Instead of keeping the deficit as target and trying to squeeze the economy further, you need to do what has to be done to get the economy on a sound footing. The deficit will take care of itself.”
The fiscal deficit is not the goal but a result of good policy and GDP growth, he said, adding if the Indian economy is growing at a healthy pace, the deficit will be fine.
India is facing its worst economic slowdown in five years due to sluggish consumer demand and slowing investments. The Narendra Modi government breached its fiscal deficit targets for the last two financial years after bringing it down initially. The fiscal deficit number will be keenly watched when new Finance Minister Nirmala Sitharaman takes the Parliament floor to present Union Budget 2019 on July 5.
Commenting on the correlation between a higher fiscal deficit and a period of higher GDP growth, Thiruvadanthai said that in the past 30-40 years, India grew with high fiscal deficit figures. “But it’s not been a problem. It’s not like we had high inflation except for a few periods.”
Here are the highlights of what Thiruvadanthai said:
- The government needs to restart growth.
- If you try to squeeze inflation, obviously GDP growth hurts.
- With the backdrop of global risks, dependence on exports will not help the Indian economy. We need to generate growth domestically.
- We need to move away from reliance on minimum support price and subsidies to a comprehensive program.
- The NBFC model’s problem is the asset liability mismatch. Infrastructure is a long-term project and you can not manage it with short-term instruments.
- Bad loan problem party comes from the fact that the economy is not growing.
- The key issue when we talk about India’s export competitiveness, especially in manufacturing, is labour abuse. We can forget about what Vietnam and Bangladesh do in terms of manufacturing. It is not possible in a democracy like India.
- We need to find our own niche for exports and ways to use labour that doesn’t require that kind of repression.
- India will continue to be a recipient of smart money because most emerging markets are not growing that fast and India continues to be a shining star.
- The risk of famine and water crisis stands in front of the new government.
- I will not like to see more MSPs and fertiliser subsidies in the upcoming budget.
Watch the full interaction with Jerome Levy MD Srinivas Thiruvadanthai below:
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