Better to focus on growth than on fiscal deficit in current situation: CEA

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Ahead of Finance Minister Nirmala Sitharaman's second Budget, Chief Economic Adviser K V Subramanian on Friday suggested the government should focus on growth rather than being rigid on fiscal deficit in times of slowing economy.

The government can look at option of increasing market borrowing to fund higher expenditure by the government in 2020-21, he said adding that if need be, the government can resort to higher market borrowing this fiscal.

"So, we've delineated the overall stance that needs to be taken in times like this. India has been in such situations earlier as well. There's always a delicate balance between spurring growth and keeping the fiscal (situation) in order," Subramanian told PTI in an interaction.

"The view that we have articulated is that it's better at this point to lean on growth. When you look at the debt-to-GDP ratio, the denominator is the GDP, and our analysis has also shown that when GDP growth increases, the debt-to-GDP ratio falls as well," he said.

It is time to focus on growth and, therefore, cutting expenditure is not an option, probably because at a time like this, growth needs to be taken care of, he added. When asked about ideal number for fiscal deficit for the current fiscal and next fiscal, he said there are multiple considerations that are involved there. "So, I would not want to basically provide a specific number in any case. You will hear about that tomorrow (on Saturday)," he said.

According to the Budget Estimate, fiscal deficit has been pegged at 3.3 per cent of the gross domestic product (GDP) for the current financial year. On a question of use of 'escape clause' given in the FRBM Act, Subramanian said there is basically a need for us to lean on growth, and the clause is actually one way of doing that.

The 'escape clause' allows the government to breach its fiscal deficit target by 0.5 percentage points at times of severe stress in the economy, including periods of structural change and those when growth falls sharply. He further said additional borrowing from the market can be an option to increase government spending in the social sector.

Asked about his view on lowering income tax to spur consumption, he said the tax base is very low and any moderation may not lead to yield desired result.

Putting money in hands of the poor would be better alternative for spurring consumption than cutting income tax, he said adding that social sector spending good measure to improve consumption demand.

On the inflation outlook, he said it would be within range of the Monetary Policy Committee. "I will not be too worried about it, especially if you look at WPI (Wholesale Price Index) inflation, which is about 2.5 per cent. So, I think given the moderation in prices, we should expect CPI (Consumer Price Index) inflation to be in range," he added.