Global observers of the Indian economy felt that a quick consolidation in India’s fiscal policy may not be the right way to go ahead, and that only a gradual path should be undertaken to ensure growth inches higher above the expectations today.

       But while they agreed that buoyant revenues and the pace of recovery will ensure growth, they held that reviving lost jobs back into the growth process will be tricky, and require focused efforts on areas that need support, such as the construction sector.

       They were on a panel that discussed the future of India’s fiscal and monetary policy and its implications on growth, at a conference organised by Confederation of Indian Industry (CII), an industry lobby group. Sudipto Mundle, distinguished fellow at the National Council for Applied Economic Research, Taimur Baig, MD and chief economist at DBS Bank, Sajjid Chinoy, chief India economist at J P Morgan, and Neelkanth Mishra, MD & co-head of Asia-Pacific strategy and India strategist at Credit Suisse, were a part. Both Chinoy and Mishra are on the Prime Minister’s Economic Advisory Council as part-time members.

       Shankar Acharya, former chief economic adviser to the central government and a member of the 12th Finance Commission moderated the discussion.

       All of them mentioned the plight of the informal sector and the need to undo the losses therein to secularly revive jobs and consumption in the economy.

       "There has been scarring in the informal sector, and as a result, consumption levels in the economy have stagnated. The marginal propensity to consume--how much more individuals will spend for every additional rupee earned--has been affected," said Sudipto Mundle.

       The supply chain disruptions have a lot to do with the underperforming informal sector, he said.

       Taimur Baig said that expedited formalisation has had a collateral damage on small businesses, who were not equipped to handle it. This has resulted in major scarring. Fiscal policy should cater to these areas in the economy.

       "In the long run, formalisation would improve business environment, but done hastily, it erodes tax base and hurts the fisc, rather than helping it," said Baig.

       On monetary policy, they asserted that the movement should now be in order to push real interest rates in the positive territory.

       “The RBI should look at narrowing the policy corridor at a gradual pace, such that real interest rates cease to be negative,” said Sajjid Chinoy.

       Mundle said that much of the heavy lifting has been done by the central bank in the period of deep crisis. Now that core inflation is at the upper end of the band, and that the US has started tapering its bond purchases, India's monetary policy should think about raising interest rates.

       “The heavy lifting, now, remains to be done at the fiscal level. To that effect, the buoyant revenues this year have been a relief,” Mundle added.

       Neelkanth Mishra remained the most optimistic among the group, and suggested that actual growth numbers for growth in successive years could be in the 9-10 per cent range, against the consensus near 7 per cent mark.

       But he also said that parts of the economy are still struggling, and they need to be looked at. A lot of job losses yet to be recovered are in the services sector.

       Even if these jobs come back, their household balance sheets are broken, and they will take time to mend. Repairing this at the earliest should be the priority of the fiscal policy, said Mishra.

       The ray of hope could be the nascent, but meaningfully reviving construction sector. After a brief eight-year period of flat nominal output growth in the sector, indications are such that it has now started to turn, he said.

       Talking about fiscal consolidation, Chinoy said that there is a need to reduce the primary deficit as soon as possible, to reduce the debt pressure. But the process should not be too quick, he added. Such rapid tightening of fiscal policy has in the past choked the growth potential of advanced economies.

       Mundle critically mentioned that while sustained expenditure will solve the growth problem, it may not save us from the jobs problem. For that, he said, we need growth rates higher than even the 7 per cent what optimists think.