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The government should consider reducing import tariffs on certain items, further recapitalise banks in light of COVID-19, and push for privatisation in the upcoming budget, a group of prominent economists told Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman, Moneycontrol has learnt.
The economists are also learnt to have said that retail inflation needs to be monitored, that there should be further rationalisation of direct taxes and goods and service tax, the Centre should rework the medium-term fiscal roadmap, and the stability of rupee must be ensured.
Modi, Sitharaman and officials from the Prime Minister’s Office, Niti Aayog and the Finance Ministry interacted with economists on January 8, ahead of the Union Budget 2021-22, which will be tabled by Sitharaman on February 1. The meeting went on for around two hours.
As per an official aware of the deliberations in the meeting, the economists present in the video-conference meeting included former Reserve Bank deputy governor Rakesh Mohan, former Monetary Policy Committee member Ravindra Dholakia, former chief economic advisor Shankar Acharya and former Niti Aayog vice-chairman Arvind Panagariya.
Others included former Infosys and ICICI Bank chairman KV Kamath, Bibek Debroy of Niti Aayog, Soumya Kanti Ghosh of State Bank of India, Sonal Verma of Nomura and Abheek Barua of HDFC Bank.
“One of the suggestions was that India should reduce some of the tariffs, that we should be more outward looking than inward looking. Those present also suggested that because of COVID-19, privatisation and asset sales have not taken off as much as the markets were expecting, and the government should renew its thrust on divestment in the coming budget,” said the official.
In a recent report, the World Trade Organization has said that India’s average tariff has increased to 14.3 per cent in 2020-21 from 13 per cent in 2014-15 with policymakers frequently using trade policy measures to encourage domestic production and curb inflation.
For 2020-21, Sitharaman had set herself the highest-ever annual divestment target of Rs 2.1 lakh crore, only a fraction of which is expected to be met. The Centre is hopeful that the planned privatisation of Air India, Bharat Petroleum, Container Corp and Shipping Corp, and the initial public offering of LIC Ltd, will happen in 2021-22.
The economists are learnt to have suggested that given the higher risk of defaults due to the economic contraction, the Centre should undertake another round of bank recapitalisation, and that while the current fiscal responsibility and budget management roadmap does not hold, the government should lay out a reworked glide path.
“There were suggestions of further tax rationalisation, need to bring down inflation, and ensure the stability of rupee and exchange rate,” the official said, and added that all the analysts were of the view that the recent farm laws were good for the economy.