Not worried about budget deficit as spending up to support economy: FM

Union Finance Minister Nirmala Sitharaman during a press conference after cabinet decisions in New Delhi on Wednesday.
India will not worry about missing its budget deficit target as it seeks to step up spending to support the economy, Finance Minister Nirmala Sitharaman said.


The stimulus spending won’t be wound down in a hurry, she said in an interview to Bloomberg TV. The government and the central bank together have done a good balancing act, she added.


“For the present, I’m not going to allow the fiscal deficit number to worry me because there is a need, and a clear need, for me to spend the money,” Sitharaman said.


Sitharaman, who reviews government expenditure every 15 days, said she will will push state firms to accelerate spending. Prime Minister Narendra Modi last month expanded support measures to Rs 30 trillion ($120 billion), or 15 per cent of the economy, to rescue companies and save jobs lost due to the Covid-19 pandemic, adding to global stimulus that has touched $12 trillion.


Economists see the additional spending, along with falling tax revenue, pushing India’s budget gap wider to 8 per cent of gross domestic product (GDP) in the current financial year, more the double the targeted 3.5 per cent. “As regards the coming year, we need to do an assessment,” she said ahead of the next fiscal year’s Budget due February 1. “I’m not sure that I can immediately curtail expenditure. It will have to be a careful balance because the momentum that the economy gains should be sustained.”


The government’s economic support package mostly comprises of loan guarantees to businesses, with the actual fiscal cost for the government seen as much less, according to economists including Standard Chartered’s Kanika Pasricha, who sees the headline fiscal impact at around 1.3 per cent of GDP.


The Centre also raised its borrowings target to a record Rs 13.1 trillion. S&P Global Ratings and Fitch Ratings previously said their assessment of India’s sovereign score hasn’t been altered by the economy’s additional borrowings.


“The government spending is important to bring the economy on track and globally, countries are following this route,” said Deven Choksey, a strategist at KRChoksey Investment Managers in Mumbai. “The markets are likely to remain flush with liquidity and we can worry about the deficit later.”


Countries that resorted to stimulus spending of as high as 20  per cent of their GDP are now resorting to additional taxation, Sitharaman said, adding that the government’s measures were working well for India, and helping fuel a recovery in the economy.


Both the IMF and “the central bank have very clearly seen good recovery happening,” Sitharaman said. “A sustained good positive recovery is what I see from the beginning of the next fiscal year.”

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