BackMarkets await macro signals
Fiscal deficit targets have been relegated to the back burner, but India hasn’t made a big splash with spending, given its fiscal constraints
PremiumGovernments across the world are spending their way out of the pandemic-triggered recession. Fiscal deficit targets have been relegated to the back burner, but India hasn’t made a big splash with spending, given its fiscal constraints. Despite being among the worst-affected economies in the fiscal first-quarter, help came largely through credit rather than fiscal support. But now with recovery setting in, the economy requires its fiscal dose, and markets are ready with their list of must-dos for the finance minister.
Of course, it is imperative that the government maintain a balance between growth and fiscal prudence. One view is that growth will create future revenues, which in turn would take care of the fiscal deficit. Too tight a fist may endanger India’s growth and, by extension, the government’s coffers. At the same time, it is not wise to throw away prudence completely, especially when revenues are uncertain. Estimates suggest the Union government’s fiscal deficit could widen to more than 7% of gross domestic product for FY21.
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The finance minister has indicated that spending would not be curtailed to narrow the deficit. But markets have their comfort levels, and the government may need to manage not just its own purse but also market expectations. What investors want is targeted spending in sectors that give more bang for the buck in terms of economic recovery. They want the government to fix the leaky banking sector for seamless financial flow and above all give that push to infrastructure for its multiplier effect. What should the finance minister prioritize? If the budget is pro-growth, will it also be inflationary? The bottom line is to make the fiscal deficit count. These and other facets of spending, allocation and prudence will be discussed by an expert panel comprising Pranjul Bhandari, chief India economist at HSBC; Neelkanth Mishra, India strategist at Credit Suisse; R. Sivakumar, head of fixed income at Axis Mutual Fund; and Vetri Subramaniam, head of equity at UTI Mutual Fund. Journalist Mitali Mukherjee will moderate the discussion. Watch live at 7pm on www.livemint.com
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