Fiscal stimulus withdrawal a counter-cyclical necessity: Finance Secretary Somanathan

On macroeconomic growth and global vulnerabilities, TV Somanathan iterated that Real GDP growth of 6.5 percent is not low.

The fiscal prudence in the interim budget presented on February 1, characterised by the commitment to adhere to the path of fiscal consolidation and achieving a fiscal deficit target of 4.5 percent of GDP by FY26, was necessary, Finance Secretary TV Somanathan said in a post-budget interview to Moneycontrol.

The government has set a fiscal deficit target of 5.1 percent of GDP for FY25 and revised the estimate in the FY24 budget to 5.8 percent from 5.9 percent.
Several schemes of the Modi government have seen only a modest hike in allocation or none at all. The Pradhan Mantri Kisan Samman Nidhi, which provides income support to farmers, had its outlay of Rs 60,000 crore unchanged from the previous financial year.

Asked about the withdrawal of stimulus at a time of slowing growth, Somanathan said it was a matter of basic economic prudence when conditions that led to the stimulus no longer existed to the same degree.

“I think fiscal stimulus being withdrawn is a countercyclical necessity. The error that many economies have made is to inject a stimulus when it is necessary and then not to withdraw it when it is no longer as necessary as it was. This means you do not have the firepower for the next round of something that may happen,” he said. “Stimulus was started at a time when growth was negative, not when we are talking of whether growth will be 6.5 percent or 7 percent.”

On growth and global vulnerabilities, Somanathan iterated that real GDP growth of 6.5 percent is not low.

“Growth of 6.5 percent itself will be high. We live in a different world, where trade is constrained and geopolitical situations are difficult,” he said.

On what is driving his confidence amid tepid consumption growth and global uncertainty, he said: “With what we have presented in the budget, I am very confident that we will achieve one of the world’s highest rates of growth.”

The Budget is “a judicious mix of fiscal impulse and fiscal consolidation. This is what we think is the right balance for the times," Somanathan said.

Watch the full interview on Moneycontrol. Coming soon.