New Delhi: The Indian economy’s recovery in the third and fourth quarter of this fiscal may be lower than expected if one goes by the high frequency indicators, IMF Chief Economist Gita Gopinath said Friday while pitching for India to stick to the path of fiscal consolidation.
Speaking at an event organised by industry body FICCI in the national capital, Gopinath pointed out that rising borrowing costs due to higher government borrowings could crowd out private investment.
“India’s consolidated fiscal deficit of both the Centre and the states is one of the highest in G20. Borrowing costs are high and interest bills of the government are high. There is a bit of sense of crowding out in the private sector. It’s not a free lunch and it has to be very very carefully managed,” said Gopinath.
“For India, macroeconomic stability is important and for that fiscal stability is important. A clear sense of keeping to the fiscal consolidation target is important. That would need increasing revenue mobilization and rationalizing expenditure,” she added.
Gopinath said increasing expenditures is not a problem as long as it is accompanied by revenue mobilisation measures.
The IMF chief economist’s comments come at a time when the central government is facing the risk of overshooting its fiscal deficit targets as it looks to announce measures to revive falling growth.
Indian economy grew at a six-year low of 4.5 per cent in the July-September quarter and is expected to grow at 5 per cent in the full year, according to the Reserve Bank of India.
At the event, Gita Gopinath said the International Monetary Fund is likely to revise India’s growth forecast downwards in its January outlook.
“Our expectation was that there would be a recovery in the third and fourth quarter. Looking at high frequency indicators, we are not seeing the uptick that we expected in the third and fourth quarter,” she said.
IMF, in its October growth forecast, had estimated that India will grow at 6.1 per cent in 2019-20 and 7 per cent in 2020-2021.
She pointed out that persistent stress in banks and non-banking finance companies has been deeper than expected.
Accelerated clean-up of banks is required as there is a decline in banks’ risk taking appetites, added Gopinath.