Higher private spending required to spur growth in 2020s: Report

New Delhi, August 14

A faster growth in private sector spending would be required to spur economic growth in the 2020 decade, Motilal Oswal Financial Services (MOFSL) said.

The MOFSL research note cited limitations in government revenues to support growth in the decade ahead.

Moreover, the Centre has provided a revised fiscal roadmap to bring down its deficit from 9.5 per cent in FY21 to 6.8 per cent of GDP in FY22 and further to 4.5 per cent of GDP by FY26.

Notably, government spending is seen as a major catalyst for economic growth over the next few years.

“However, our opinion drastically differs from the market consensus. While the GoI has relaxed and revised its deficit target, it projects large consolidation of 0.5 percentage point (pp) of GDP every year up to FY26,” the note said.

“It failed to bring down its deficit to 3 per cent of GDP before Covid and was able to reach a fiscal deficit of 3.5 per cent in FY19. Moreover, higher off-budget transactions meant that actual consolidation was even lower versus the reported numbers suggested during the pre-Covid period,” it added.

Besides, the note said that from the economic growth perspective, apart from the qualitative policies to encourage private investments, “what matters is the (quantitative) growth in fiscal spending”.

“In fact, with slower growth than earlier, this means faster growth would be needed in private spending to achieve the same GDP growth rate. Within the private sector, as we discussed earlier, household finances have deteriorated further due to Covid-19, indicating likely deceleration in private consumption as well.

“The entire burden of achieving similar GDP growth (let alone higher growth), thus, has to be borne by the corporate sector. To our mind, it seems like a tall task,” the note suggested.

–IANS