India should propose a credible privatisation plan for public sector firms, plug gaps in GST collections and cut wasteful expenditure from the Budget in order to contain borrowing costs while enhancing fiscal support for the economy, International Monetary Fund (IMF) chief economist Gita Gopinath said on Thursday.
Stressing that there is a risk of a sharp rise in inequality, with millions entering extreme poverty, Ms. Gopinath said India must continue to provide support to the weaker sections and increase outlays for the national employment guarantee scheme this year as well.
“The policies of in-kind and in-cash support that were deployed in 2020 and expired in 2020, should be deployed again this year. And also, the employment guarantee scheme should be expanded again this year like last year, so that you are able to prevent this rise in inequality,” she said, delivering a lecture at the National Council for Applied Economic Research.
On the IMF’s forecast for India’s economy to grow by 11.5% in 2021-22, Ms. Gopinath said most of the expansion would be ‘mechanical’ as “you are coming off an 8% estimated collapse in the previous year”.
“ If we do a simple adding up — over two years, we are looking at India being about 2% bigger, where it would have grown 12% normally. We still have a 9% to 10% gap that has to be filled.”
Responding to concerns about high government debt, Ms. Gopinath said any tightening of fiscal policies in the middle of the pandemic while people are still being asked to stay home, would be damaging.
“Every time you communicate your fiscal plans from now, you provide confidence that you have a medium-term fiscal framework that will bring the deficit under control once we are out of the pandemic and in a durable growth phase. That can be done by talking about specific plans,” the IMF chief economist said.
“For instance, In India, more effectiveness in GST collections, there are still gaps there… more credible disinvestment plans, there’s always been the intention but it hasn’t happened as intended. So credibility on all these fronts will give confidence to the markets and keep borrowing costs low during the transition,” she said. “A perennial problem is that there is a lot of wasteful spending that gets done in Budgets, so this is a great time to think of how you can get rid of those,” Ms. Gopinath concluded.