Calling for more public spending to arrest the economic slowdown, SBI Research in its latest report has said that India is currently undergoing a slowdown in the Gross Domestic Product (GDP) growth rate and the continued fall since the second quarter of FY17 is not short-term in nature or even transient. Noting that the economy has undergone too many structural breaks since November 2016, it said that the slowdown is real and not technical. It also warned against any spending cuts in current situation by the government to meet fiscal deficit target as growth, which is already weak will suffer.
The report further said that government should consciously expand spending and fiscal deficit, without disturbing the borrowing maths. Though, the report also admitted that after the 2008 global credit crisis, there was a surge in spending, but was unequivocal in not paying much heed to the rating agencies. It added that let’s not chase the rating upgrade mirage. India has had a solitary net rating upgrade in the last 25 years and the economy is in urgent need of a fiscal push now to shore up growth.
SBI Research said that the government can use a clause in the Fiscal Responsibility and Budget Management Act that provides for a 0.5% slip in fiscal deficit targets. Elaborating on how to keep the net borrowings in check, like the way the government has done in the current fiscal at Rs 3.4 trillion, it recommended the government to do more buybacks and switches in G-secs. It also called for exploring the short-term borrowing route more, saying ‘short-term borrowings could be increased from the current levels, as movements in short-term rates depend crucially on liquidity’.
