Fiscal consolidation proceeding very satisfactorily, says CEA Nageswaran

 Barely five months ago, I was much more comfortable with 7 per cent and I stated so in the Indian economy reviews I published in late January. But if I have become slightly more careful about projecting a growth rate between 6.5 per cent and 7 per cent, it is because I’m following the trajectory of the monsoon much more closely. I’m seeing how geopolitical developments have continued to fester and some of the conflicts have become more protracted. That could create supply side disruptions. We also see that the financial markets in the developed world may be turning after a long spell of uninterrupted rise and that will have a spillover effect as well. Also in the very short run, if you are seeing the continued growth in the import of cheaper goods from China then it will also have implications for capacity creation in the domestic economy. While capital formation by the private sector will continue to happen and continue to grow, the growth rate may be on the lower side if they feel that the external environment, both geopolitically and also in terms of trade, is creating some headwinds for them. So, for all these reasons. I said we will grow at this rate because incrementally, whether it is geopolitics, financial markets, monsoon progress or the continued acknowledgement of the fact that excess capacity has built up in China in several sectors – these are all adverse factors. Also, they are continuing to be a big player in even in low-cost, low-tech manufacturing and that has implications for several countries in Asia.

Fiscal consolidation is proceeding very satisfactorily. On Tuesday, you are getting the Budget and you will have much more insight into the fiscal consolidation. It is not an area of concern and barely one month or 1 1/2 months ago we got the upgrade of the credit rating outlook from Standard and Poor’s, the first one in 13 years. They spoke about the fact that if we go towards a consolidated fiscal deficit of 7 per cent of GDP, that will be important from their point of view. You will come to know about what the Indian government is thinking in the Union Budget. That was the reason why we felt we need to focus on the more important testing, question of the days, such as sustaining growth and creating employment etc.

They are looking for fiscal sustainability from their perspective. For example, they pointed to the fact that interest payments as a percentage of the revenues accruing to Centre are more than 40 paise on every rupee. And they also mentioned the fact that the consolidated deficit and the general government debt are on the higher side compared to the ‘Triple B-’ peer group. We see notwithstanding all these considerations that they have always raised, ultimately credit rating is about the assigning the probability of default. India has never defaulted and that should count for something.

I think PLFS (Periodic Labour Force Survey) has been a good improvement on the availability of employment statistics. Now we have the EPF for data and I think we should continuously work on making sure that the employment data available in the country continues to improve. But the fact remains that job creation was subjected to a series of shocks – some balance sheet shocks and the Covid shock. And then the energy price shock in 2022, etc. But I think, as we presented in the economic survey, there are plenty of signs that it is beginning to pick up. For example, the construction sector is creating jobs. There is not much of an issue with the number of jobs being created, but it is the quality of jobs that we need to focus attention on in the coming days.