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CEA emphasises on sticking to fiscal deficit target

By PTI
|

New Delhi, July 4: Chief Economic Adviser KV Subramanian on Thursday stressed that the government should stick to the fiscal consolidation path or risk crowding out investment due to large public borrowings. The Economic Survey, tabled in Parliament on Thursday, pegged the fiscal deficit for 2018-19 at 3.4 percent of the GDP, the same level as projected in the interim Budget.

Chief Economic Adviser KV Subramanian

It is important to stick to fiscal deficit path, otherwise there is a risk of crowding out of investment, Subramanian told reporters here.

The CEA said that in the last five years, the government has done a good job on the fiscal deficit front. Talking about challenges in raising funds, Subramanian said that investments cannot go up, unless cost of capital goes down.

"Cost of capital internationally is low, liquidity is very high there. As a result, there is opportunity both for the firms and sovereigns as well to think about going and raising money abroad," he said.

On interest rates, the CEA said despite decrease in repo rate by the RBI, some of the monetary policy transmission has not happened. The government resorts to market borrowings through government securities and treasury bonds to meet the gap between expenditure and revenue, popularly known as fiscal deficit.

While the survey has retained the fiscal deficit estimate for 2018-19 at 3.4 per cent, the general fiscal deficit -- Centre and states combined -- has been pegged at 5.8 per cent in 2018-19, down from 6.4 per cent in the previous fiscal. Referring to job creations, Subramanian said that economies of scale enable firms to become productive and thereby also create jobs.

[Economic Survey 2018-19 Tabled; FY20 Growth Projected At 7%]

"Sometimes perception that MSMEs are job creator may need careful rethink... Our MSMEs are shackled today, they are not growing as much like other countries. So we should focus on young and infant firms and give them incentives," the eminent economist observed.

Subramanian said the net job creation in small firms is not as much as it is in large firms.

PTI

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