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31 January 2018
CEA (The Total Investment
& Insurance Solutions)
Sounding
a clear note of caution on rising crude oil prices pushing inflation, Chief
Economic Advisor (CEA) Arvind Subramanian has toned down his earlier vocal
expectation of a rate cut by the Reserve Bank of India (RBI) ahead of the
central bank's final bi-monthly monetary policy review of the fiscal due to be
annouced next week. The Total Investment
& Insurance Solutions
In
an interview here with CNBC TV18 following the release of the Economic Survey
2017-18 authored by him, Subramanian said that with retail inflation edging
past the RBI's median target of 4 per cent, the "cycle has turned".
"Relative
to the last 18 months when we consistently undershot our inflation target, now
we are at or close to that. So clearly, the case for easing is now less
persuasive...we seem to be close to the inflation target," he said.
At
the fiscal's penultimate policy review in Mumbai last month, the RBI maintained
the status quo on its key lending rate for the third time in succession at 6
per cent, citing concerns on the rising trajectory of inflation. The central
bank also raised the inflation forecast for the remainder of the current fiscal
to 4.3-4.7 per cent. The Total Investment
& Insurance Solutions
The
continuing rise in food and fuel prices pushed India's annual retail inflation
rate over the five per cent mark in December, to 5.21 per cent, from 4.88 per
cent in November. The Total Investment & Insurance
Solutions
In
this connection, the CEA hinted that the government's fiscal deficit target of
3.2 per cent of the gross domestic product (GDP) could be exceeded this year in
the lead up to the 2019 general elections.
"May
involve a bit of a (fiscal) slippage, may not, we will have to see but that is
for this year. For next year, I have said three things. One the fact that it is
an election year does not mean fiscal populism and I think everyone is on board,
no fiscal populism," he said. The Total
Investment & Insurance Solutions
"The
second point made very clearly is that if you look at the pure economic cycle
now, you would in-principle and I would argue for an ambitious fiscal
consolidation on economic grounds because inflation is higher, output is
higher, output gaps are closing, and there is more volatility and external
uncertainty and therefore, consolidation," he added. The Total Investment & Insurance Solutions
The
Economic Survey cautioned that ambitious targets of fiscal consolidation for
the pre-election year be avoided. The Total
Investment & Insurance Solutions
"Reflecting
largely fiscal developments at the Centre, a pause in general government fiscal
consolidation relative to 2016-17 cannot be ruled out," it said.
On
the most disruptive measure since Independence -- demonetisation, which, along
with GST, "decoupled" the Indian economy from the rest of the world
for around four to six quarters -- the Survey said that carrots rather than
sticks should be the mainstay of government policy in cleaning up the economy.
"I
think both in terms of the informal sector, of exports, also GST, there were
transitional costs (of demonetisation). I think no one can deny that, but let
us see the other side of the ledger, what the benefits are going to be,"
Subramanian said. The Total Investment
& Insurance Solutions
