Business News/ Opinion / Quick Edit/  Opinion | A green flag from IMF’s Gopinath?

As India’s government prepares to deliver the next budget, a debate has raged over whether it should carry on with fiscal consolidation or loosen spending to stimulate the economy. Now, International Monetary Fund chief economist Gita Gopinath has weighed in, and she seems to favour the latter option—though within limits. At an industry event on Friday, Gopinath said: “When we speak about fiscal deficit, we also think of it as a medium-term target, something that is to be achieved over a period of time, not necessarily overnight." She added that increasing spending in itself is not a problem. “The question is whether that is accompanied by revenue mobilization."

Her comments appear to endorse the view that the government should use fiscal tools to pump money into the economy. Growth has slipped to under 5% and signs of a reversal are nowhere to be seen. Monetary policy has tried hard, but investment and consumer demand have failed to pick up. Fiscal expansion, it seems, will have to do the heavy lifting.

The IMF has traditionally emphasized prudence on that front, but Gopinath’s words suggest that the Fund thinks India needs exceptional measures to get its economy out of its current slump. After all, it’s unlikely that revenues can pay for the extra expenditure. While a big push to sell state-owned assets could help raise money, it’s not clear if the Centre can raise more than already planned for the year. With tax intake falling short and expenses larger than anticipated, it would be nigh impossible to keep the deficit within the official range proposed for this fiscal year. Next year may possibly see a recovery, but, unless it is dramatic, it will not be enough for revenues to soar and the fisc to self-correct. In short, deficit reduction no longer looks feasible. And, going by what Gopinath has said, the IMF may not express alarm if fiscal targets are revised.

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Updated: 20 Dec 2019, 04:38 PM IST
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