Emphasising the need for globally-coordinated policy decisions to remedy the global economic turbulence, Finance Minister Arun Jaitley on Friday said the time is ripe for a re-evaluation of the fiscal policy space.
"We feel that the efficacy of monetary policy instruments has reached its limits and that its pass through has not been seamless. The time is ripe for a re-evaluation of the fiscal policy space, with a greater focus placed on public investment," Jaitley said at the G-20 Finance Ministers and Central Bank Governors meeting on 'Global Economy and Framework for Strong, Sustainable and Balanced Growth'.
The key downside risks which could derail the fragile global recovery are - weak demand, tighter financial markets, softening trade and volatile capital flows, he noted.
"India has always emphasised the need for globally coordinated policy decisions to remedy the global economic turbulence," the minister said.
"We also appreciate the efforts being undertaken by the Chinese government in re-balancing their economy and in particular in reducing excess capacity in several sectors," he said adding that this would create necessary space for manufacturing activity in other countries.
Noting that declines in both imports and exports were recorded in all G20 economies in 2015, Jaitley stressed the need to articulate an effective and tangible policy response to revive the trade engine of the global economy.
"Countries must avoid trade protectionist measures, and refrain from competitive devaluations," Jaitley said. "We should also take note of the asymmetry in the global financial safety net," he said.
While advanced economies have access to swap lines in order to smooth currency shocks, emerging market economies, which are highly dependent on reserve currencies both for borrowing and for international transactions, do not have recourse to these, he added.
"Global and regional financial safety net and oversight needs to be augmented, including through new financing mechanisms," he said.
Jaitley said individual and collective efforts to restore growth back to pre-crisis levels have had limited success.
The distribution of risks to the Global Economic Outlook continues to remain tilted to the downside, and global growth continues to disappoint.
Even the projection of future global growth has been subject to recurring downward revisions, he said.
Jaitley said India has consistently recorded the highest growth figures in the world for the last three quarters. "We expect this momentum to continue, assuming a normal monsoon. That being said, the fading impact of lower input costs on value addition in manufacturing, persisting corporate sector stress and risk aversion in the banking system, and the weaker global growth and trade outlook pose downside risks to India's growth outlook," he said.
The Indian government is dealing with these challenges through various policy measures, the minister said.