Let centre’s fiscal deficit slip a little

Let centre’s fiscal deficit slip a little

Sorry, IMF, India has to raise public spending.

Indian policymakers do not need downward revisions of their growth forecast for India by the IMF and the World Bank to know that growth for the current fiscal could well be below 10% in nominal terms. They also have little use for advice from the IMF’s chief economist that India should avoid any fiscal slippage. Core sector growth for August was negative. The Index of Industrial Production for August dipped. Flow of funds to the commercial sector from April 1to mid-September tanked a whopping 88% as compared to the like period a year ago. Sale of passenger cars fell 24% in September. Trade data for August shows steep falls in not just exports but also in imports, suggesting slower economic activity.

The Purchasing Managers’ Index (PMI) for services for September plunged below 50%, indicating contraction, for the first time in 19 months, even as manufacturing PMI managed to crawl above 50%, just about. The bad news is robust. What of the remedial measures announced so far? The lending sprees by State-owned banks have commenced. Disbursal of pending payments by the government remains tardy. Oft-repeated directives to mandatorily list on the Trade Receivables Discounting System (TReDS) invoices raised by small suppliers on big companies, to relieve liquidity stress on small enterprises, have seen poor compliance. State finances are strained, thanks to disappointing tax collections, depressing their capital expenditure. Data from the Controller General of Accounts (CGA) shows that by end-August, both total and capital expenditure figures, as a proportion of the total for the year, were lower than in the previous year. The primary deficit, in contrast, was higher.

The inescapable imperative is that the government must, while it musters policy and courage to tackle structural problems, raise spending on infrastructure to boost demand. Bodies like the National Investment and Infrastructure Fund must buy out stalled real estate and infrastructure projects and complete them. Don’t leave everything to time, the great healer.