India does not need further fiscal stimulus to revive the economy, despite record low inflation and growth seen at the lower end of an 8.1-8.5 percent target this financial year, chief economic adviser Arvind Subramanian said on Wednesday. Comments by Subramanian earlier this month that a sharp drop in inflation meant the economy was in or close to deflationary territory led to a debate over whether public spending should increase to boost growth, along with calls for rates cuts.
"I don't think extra stimulus at this stage is necessary," Arvind Subramanian told Reuters in an interview, adding that the government "will and must" meet the fiscal deficit target of 3.9 percent of GDP in the current fiscal year. Subramanian was instrumental in Finance Minister Arun Jaitley's decision in February to soften the target from an initial 3.6 percent to free up resources for a growth-boosting splurge on roads and railways.
He said this public spending along with consumption will be the "big engines" of the economy in the short-term as debt-ridden private companies could take time to raise investments. "In transport we are on track, in railways we need to catch up," he said, referring to about the $10.6 billion the government added to the infrastructure budget presented in February. Prime Minister Narendra Modi, who was forced last month to put on hold a growth-boosting tax overhaul and drop a major land reform, is facing slowing exports and a short-fall in rains that could hurt food grain production.
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