Indian economy on fiscal consolidation path: Finance Minister

Minister of Finance Nirmala Sitharaman told the IMF that the Indian government is committed to bringing the economy on a path of fiscal consolidation in the near-to-medium term, with a target of reducing the fiscal deficit to 4.5% by 2025-26.

Sitharaman told the International Monetary and Financial (IMF) Committee here that the Indian government is ready to provide additional capital to Public Sector Banks (PSBs) as and when needed, and that inflation is trending lower than expected.

Sitharaman said that while an accommodative fiscal stance is being maintained in the near term to support the economy, the government remains committed to bringing the economy on the fiscal consolidation path in the near-to-medium term.

The medium-term fiscal strategy would include revenue mobilisation as a key component. Streamlining with e-invoicing, GST audits, closer scrutiny of returns and rate rationalisation are all expected to boost GST revenues; rationalised corporate income tax rates are also expected to boost tax compliance and buoyancy.

The finance minister informed that disinvestment with a focus on privatisation and monetisation of sovereign assets would aid the consolidation process.

The emphasis on infrastructure investment, including health, education, and skill development projects, will continue. Increased public infrastructure investment is expected to attract private investment, boosting potential output and medium-term growth.

The finance minister asserted that India's banking system is well capitalised, stating that the Reserve Bank of India's (RBI) stress tests revealed that scheduled commercial banks would have sufficient capital even in a severe stress scenario.

The Finance minister also said that the government is prepared to provide additional capital to Public Sector Banks as needed.

On the demand side, aggregate demand is firming up, while supply-side indicators reflect improved industrial activity, and services sector indicators point to long-term recovery.

India's GDP is expected to grow at 9.5% in 2021-22 and 8.5% the following year, according to the IMF.

A sustained easing of core inflation can be expected as pandemic scars heal and supply conditions are restored through productivity gains, according to the finance minister, reinforcing monetary policy's growth-supportive stance.

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