CEA Nageswaran's secret sauce for biggest fiscal stimulus to the economy

Amid calls for an expansionary budget on February 1, India’s Chief Economic Adviser (CEA) V Anantha Nageswaran has a secret ingredient for the biggest fiscal stimulus for the country’s economy.

“Determined efforts should be taken to make the public sector asset monetisation scheme successful in realising wide-ranging efficiency gains from the programme," India’s Economic Survey for 2022-23, tabled in Parliament on January 31, said.

“If asset monetisation revenues are used to reduce public sector debt, the sovereign credit rating will improve, leading to a lower cost of capital. That will be the biggest fiscal stimulus to the economy,” the survey, which comes a day ahead of the Budget 2023, added.

Finance Minister Nirmala Sitharaman is due to present her budget for the next financial year in the Lok Sabha on February 1 amid expectations that the government will aim for a lower budget gap target while keeping its capex-push intact.

Global agencies slot India's credit rating in the lowest investment grade, making it relatively pricier for the country to sell its debt. A higher credit rating should lower its interest cost and incrementally lower the total debt burden.

Striking a balance 

The government has planned an ambitious asset monetisation plan which estimates aggregate monetisation potential of Rs 6 lakh crores through core assets of the Union government, over a four-year period from FY22 to FY25.

The Economic Survey expects the economy to grow 6-6.8 percent next financial year after growing by an estimated 7 percent this fiscal.

Also Read: Economic Survey 2023 key highlights: GDP growth for FY24 at 6-6.8 per cent, higher CAD

Several experts have called for the government to balance fiscal rectitude and the need to maintain macroeconomic stability amid slowing global growth and persistent global uncertainties.

The new-age reforms undertaken over the last eight years form the foundation of a resilient, partnership-based governance ecosystem and restore the ability of the economy to grow healthily, further reforms are needed to ensure that economic growth can accelerate and sustain at higher levels, the economic survey said.

It called for reforms across sectors to unleash the potential.

“Negative shocks will and do fade, as they did in the early years of the new millennium. Now, financial and corporate sector balance sheets are in good shape, and there is a willingness to borrow and lend. Hence, it is inevitable that the effects of these reforms will now shine through,” the survey, which is authored by a team led by the CEA, said.

A restored credit cycle will rejuvenate the Indian private sector capex cycle, which alone is adequate to enable India to grow at least 6 percent per annum in real terms.

In addition, the higher economic efficiency resulting from the public digital infrastructure created over the last six-seven years will also add 30-50 basis points to the potential GDP growth.

The survey expressed confidence that India will achieve an average of 6.5 percent real GDP growth in the medium term.

“In addition, if the other reforms explained in the previous paragraph are pursued in the coming years, India’s potential GDP growth can rise to 7-8 percent per annum in the medium term,” it added.