Stretch Fiscal Deficit Targets to Aid Growth, Says K V Kamath

Veteran banker K V Kamath on Friday said in order to push growth the government needs to stretch the fiscal deficit target set in the budget. 

He said benign interest rates of under 8 per cent and abundant liquidity are also necessary to seize what he called a 25-year growth runway opportunity awaiting the country.

"Hopefully, we will be in a benign interest rate structure. That is critical to all that we have said," he said.

The government has targeted to get the fiscal deficit at 6.8 per cent for FY22 in the Budget presented early this year. However, the ravages of the second wave of the Covid-19 pandemic have resulted in calls for more spending by the government even as the revenue collections go down.

"This is a time to be brave… That is the only way out of the challenge that we have. To the extent that you need to stretch the budget," Kamath said, speaking at an event organised by the IMC Chamber of Commerce and Industry.

He said the government has already been brave while presenting the Budget and has said that they are willing to stretch the deficit to make sure that the country continues to be on a growth path.

Kamath, who had a long stint with ICICI Bank, said he does not feel that the fiscal slippage will be very wide because of the wide variety of innovative financing options that are available to raise money for projects and also monetisation.

He said the economy is on a strong footing to grow for another 25 years and termed it a 'growth runway' before us.

Kamath said the difficulties on the infra creation side have been taken care of largely through innovative financing models, and advocated for the government to start building a project before monetising it ahead of completion.

He said the biggest risk is that of project execution, which if taken care of by the government, will make private investors interested in projects. With the possibility of such an outcome, it is not necessary to have public-private partnerships (PPP) in place, he said.

Kamath said there is no need for introducing tax-free infrastructure bonds at this point, and spoke against third parties being allowed to do so saying only the government should do such issuances if need be.

On the manufacturing side, Indian companies do not have difficulties like the ones that have plagued in the past because of sufficient reserves and the possibility to deleverage, he said.

According to Kamath, the 'digital supercycle' will help the economy grow along with wide job creation.

The government should also tap into the idea of having coastal economic zones and start such enclaves, Kamath said.