Modi’s Advisers Suggest The Government Should Stick to Its Fiscal Deficit Target

The prime minister's advisers said the government should stick to its fiscal deficit target but there should be a continued emphasis on the social sector reforms.

The macroeconomic fundamentals of the Indian economy are sound, but there are some structural challenges, according to Prime Minister's Economic Advisory Council. Among the challenges that need to be addressed are reforms for small businesses, skill development, credit issues, digital payments and the banking sector, the Bibek Debroy-headed panel said in an official release.

The challenges in the agricultural sector, it said, should be addressed by “looking closely” at credit flows, and support to employment programmes like Mahatma Gandhi National Rural Employment Guarantee Act. The headwinds in external trade should be reversed through supportive policy interventions as there is a positive turn in exports, according to the release.

The Narendra Modi government plans to lower India's fiscal deficit to 3.3 percent of the gross domestic product for the ongoing financial year. It also estimates the gap to lower further to 3.1 percent in 2019-20.

India's growth, according to the release, is expected to be in the range of 7-7.5 percent in the next few years—one of the fastest in the world. That too when the prospects of world economic growth don't look that promising, the panel said. “However, with reforms designed to address the structural problems, growth rates can easily be enhanced by at least 1 percent.”

The panel also said exchange rate management by the Reserve Bank of India has been “sound” despite volatility in oil prices.

Brent crude oil prices rose to their four-year high in 2018, raising concerns of widening India's current account deficit due to higher import bill. Oil prices have fallen since then. Crude was trading at $61.14 a barrel today.