NEW DELHI: With the second quarter GDP growth falling to a 7-quarter low of 5.4%, economists have asked the government to shift its policy focus to growth rather than fiscal consolidation. In a pre-budget meeting with finance minister Nirmala Sitharaman on Friday, a delegation of economists suggested the government readdress the pace of fiscal consolidation and take measures to boost consumption.
“Right now whether it is the RBI’s monetary policy or the government’s fiscal policy, the focus on growth has taken a back seat and there is a need for course correction,” said an economist, who was in the meeting, while talking to TNIE.
Another economist with a financial institution told TNIE that the fiscal consolidation path has to be realigned so that growth is not sacrificed for keeping debt/GDP ratio in check. “We have seen a large reduction in the fiscal deficit target in the last few years and now the government should slow down the pace as the central government debt/GDP ratio has fallen below 60%,” she said.
The government has reduced the fiscal deficit from 6.7% of GDP in 2021-22 to 5.6% in 2023-24. For FY25, the target is 4.9%. India’s second quarter GDP fell from 6.7% in the first quarter to 5.4% in the second quarter primarily due to tepid consumption growth and moderation in manufacturing. On Friday, the Reserve Bank of India (RBI) cut its FY25 GDP estimate from 7.2% to 6.6%.
The delegation also stressed on the need to take measures – including tax cuts — to boost consumption. One of the economists (who was in the meeting) TNIE talked to argued that the government must take a pause on raising tax rates like the way they raised capital gains tax in the previous budget. “The government may even need to go for targeted tax rebates to boost consumption,” he said.
