The Indian economy may be encountering a “perfect storm”, which calls for the country to pursue a “responsible fiscal policy”, the Kelkar Committee has said.
This committee, which was tasked to chart out a roadmap for fiscal consolidation, has made a case for doing away with all subsidies.
“We cannot overemphasise the need and urgency of fiscal consolidation,” the panel said in its report, which was made public by the Finance Ministry today.
Comments from all stakeholders have now been invited on the recommendations.
Potentially, if no action is taken, India is likely to be in worse situation than in 1991 for several reasons, the Kelkar committee has warned.
The energy prices are at much more elevated levels while India’s import dependence is now even greater
“It is important that as a responsible nuclear power, India pursues a responsible fiscal policy. This will enable us to retain our strategic autonomy,” the report said.
It highlighted that India currently has the least room for counter-cyclical fiscal policy response if conditions take a turn for the worse in global markets, second only to Egypt among 27 major emerging markets.
Short-term pain
“The process of fiscal consolidation will no doubt cause some short-term pain which should be equitably shared.
“With determined policy action and astute political statesmanship, the pain of voluntary fiscal correction now will forestall the pain of externally enforced involuntary fiscal correction later.”