Enhancing Public Expenditure Not Easy Option: Siddhartha Sanyal

The finance ministry's chief economic adviser Arvind Subramanian made a case for boosting public spending to push economic growth in the country last week.

Economic growth over the last two years has been below 5 per cent and in this fiscal, India's GDP growth moderated to 5.3 per cent in the September quarter, down from 5.7 per cent in the June quarter. Private investment has not picked up despite the government's several initiatives.

However, Siddhartha Sanyal, chief India economist at Barclays Capital, says that enhancing public expenditure is not an easy option for the government at this juncture. (Watch full interview)

Given the fact that the fiscal deficit has already reached nearly 90 per cent of the full-year target between April and October, it will be difficult for the government to increase its public expenditure to revive growth, said Mr Sanyal.

The government on Friday acknowledged that there may be a revenue shortfall of over Rs 1 lakh crore in the current financial year. So, it is obvious that government will resort to some spending cuts in the last three months to resort to its fiscal deficit target of 4.1 per cent in 2014-15 fiscal year, Mr Sanyal added.

"In last few years the government has been busy in suppressing some of the expenditure so that they meet the fiscal deficit target. I would really be surprised to see if this year can be dramatically different and the government just enhances its expenditure in the investment areas," he added.

Mr Subramanian's advice to boost public expenditure could be taken up in the next financial year though, Mr Sanyal says. The government can also boost spending in the infrastructure sector, not necessarily by investing a lot of money on its own, but by pulling investment from foreign sources, he added.

According to Barclays, India's economic growth will gradually pick up over the next couple of years, led by a pick-up in consumption oriented sectors, which will attract foreign investment.

"Investment decision in India looks more attractive than most of its counterparts," Mr Sanyal noted.

Government's initiative on improving the ease of doing business in the country will also help in attracting more foreign investment into the country, he added.