ET View: Time to boost demand, forget the fiscal deficit target

The time has come for the government to shed its obsession about fiscal deficit targets and borrow more from the market, both to compensate the states for their shortfall in GST collections and to meet its own expenditure commitments. India still ...

The most striking feature of the second quarter GDP growth figures released by the government is that nominal growth is at 6.1%, half the rate at which the Budget assumes the economy would grow. This means that tax collections would be sharply lower than budgeted and the government would be forced to compress expenditure sharply if it wants to still stick to its fiscal deficit target. The time has come for the government to shed its obsession about fiscal deficit targets and borrow more from the market, both to compensate the states for their shortfall in GST collections and to meet its own expenditure commitments.

India still has deep reserves of economic resilience and it is necessary to avoid any self-defeating talk of recession. It is possible to move out of the slowdown in which India finds itself. But, for that, policy has to be bold and innovative. One possible avenue of action is to create special purpose vehicles to buy out the stalled projects that reside on banks’ books as bad loans and complete them, to give a boost to demand. The real estate package announced by the finance minister has to be expanded in scale and scope.

The effects of the tax cuts and other relief measures would manifest in the second half of the year and that is likely to be a trifle better than the first two quarters. The point is to think positive and creative, and not give in to gloom.

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