Fiscal resolve in budget creates headroom for the monetary authorities

Vetri Subramaniam, Group President & Head-Equity, UTI AMC
The slowdown in India has been evident since the end of 2018. The government has taken several measures to address this slowdown in recent months.

Monetary policy has also turned accommodative and over time we expect growth to respond. For India growth is as much an element of macro-economic stability as is the fiscal deficit, current account deficit or inflation. In this context the budget as a policy tool provided an opportunity to deliver a counter cyclical fiscal impulse. This strategy is not without risk given the size of the government’s borrowing program and our historically weak track record of fiscal consolidation.
The government has made the decision in this budget to stay on the path of fiscal consolidation. This choice, while prudent, raises downside risks to growth. On the positive side the government’s fiscal resolve creates headroom for the monetary authorities to remain supportive of growth.
(Share Manthan, February 02, 2020)

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