Creative Commons

Higher public spending will be necessary to arrest the continuing slide in economic growth, which has been prevalent since September 2016, SBI Research said in a report on Tuesday, according to a PTI report.

"We certainly believe that we are in a slowdown mode since September 2016 and a slowdown that has been prolonged to Q1 of this fiscal year is technically not short-term in nature or even transient," the PTI report said, quoting from the SBI Research paper's observations.

The report said continuing slowdown has "raised the spectre of whether the slowdown is temporary or not" but stopped short of answering the question.

The note comes days after BJP president Amit Shah attributed the economic slowdown to "technical reasons" without elaborating on the same.

GDP growth fell for the sixth quarter in a row to hit a three-year low at 5.7 per cent in the June quarter of fiscal 2018 ended June 30, 2017. But Shah claimed that growth has increased to 7.1 per cent after falling to 4.7 per cent in 2013-14 when the UPA government was in power.

The report advocated upping of spends by the government as a solution to the problem at hand. "The need of the hour is to spend to grow more," it said.

"We believe the government should consciously expand spending and fiscal deficit, without disturbing the borrowing maths," the report said.

The report admitted that after the 2008 global credit crisis, there was a surge in spending, but was unequivocal in not paying much heed to the rating agencies.

The PTI report added that such moves by the government have in the past been termed as "fiscal profligacy" by rating agencies, which also threatened to downgrade the country's rating to junk if the Centre continued with such policies.

gst, gst on services, gst service tax, service tax at 15%, gst service tax 18%, , india gdp, india gdp composition
Narendra Modi speaks at a ceremony to launch the Goods & Service Tax (GST), in Central Hall of Parliament on June 30, 2017.PIB India

The SBI Research report did not advocate chasing the rating upgrade mirage. "India has had a solitary net rating upgrade in the last 25 years. The economy is in urgent need of a fiscal push now to shore up growth," the report said.

The government can use a clause in the Fiscal Responsibility and Budget Management Act that provides for a 0.5 per cent slip in fiscal deficit targets, PTI said quoting the SBI Research report.

The research report recommended that the government do more buybacks and switches in G-secs to keep its net borrowings in check as it did successfully in the current fiscal at Rs 3.40 lakh crore.

Increasing borrowings through the short-term borrowing route was recommended by the paper, which said, "Short-term borrowings could be increased from the current levels, as movements in short-term rates depend crucially on liquidity".