Opinion | India needs a counter-cyclical fiscal response to the ongoing slowdown

The advance GDP estimate for FY20 points to the slowest economic growth in nearly 11 years at 5%. This is a disappointing outcome. Without going into the intricacies, there are both cyclical and structural forces at work. The credit market issues that broke out in 2018 have negatively impacted the availability and cost of credit. Consumption growth has moderated, and investment growth is subdued. The fiscal deficit is likely to overshoot but the current account deficit is in the comfort zone. Headline inflation has climbed due to the spike in food prices, but this is likely transient, and inflation should stay moderate as the economy is running well below potential. India’s macro parameters are in reasonably good health even as growth has stalled.

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