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These efforts come amid plans to bring down the overall debt-to-GDP ratio of the Centre and states by improving the quality of expenditure and by tempering Centre’s borrowings from the market. Meanwhile, several Indian states are increasing their expenditure on subsidies and welfare schemes, potentially at the expense of capital expenditure.
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Strong government finances are crucial for an economy's stability. While a law is in place in India for instilling financial discipline in government finances, the roadmap it spells out has been redrawn multiple times.
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The government deserves praise for cleaning up the fiscal Augean Stables but needs to recommit itself to the path of lowering the fiscal deficit to the Fiscal Responsibility and Budget Management (FRBM) Act’s target of 3% of GDP, says Subhash Chandra Garg
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This time around the FRBM target could be postponed by a few years until GDP returns to trend growth, employment improves, and tax buoyancy returns.
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Though the LTC and festival advance schemes will result in a temporary boost to consumer sentiment and economic activity, this would only end up upfronting consumption, and the temporary uptick would subsequently fizzle out, Aditi Nayar told Moneycontrol in an interview.
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Part of the fiscal deficit should be monetized as a one-off measure
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Though states have managed to keep their fiscal deficits within the mandated threshold of 3 percent of the gross domestic product (GDP) in the last two years, an economic slowdown and now a pandemic makes it a tall task for states
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The Minister was addressing a gathering of industry representatives and trade.
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Moody’s estimates corporate tax cuts will add 0.1 percentage point to India’s GDP growth.
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The FRBM committee, which was headed by N K Singh, also recommended that the states should bring down their debt-to-GDP ratio to 20% by the same period.
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CAG further said the government should also consider disclosing the details of off- budget borrowings through disclosure statements in Budget as well as in accounts.
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A former deputy RBI governor and chief economic adviser to the government gives an authoritative account of economic reforms during the NDA I years.
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Calling for more focus on debt-to-GDP ratio, its recommendation for the fiscal deficit for the current fiscal is lower than 3.2 per cent that Finance Minister Arun Jaitley has set for himself in the Budget for 2017-18.
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The report recommended fiscal deficit to be cut to 2.8 per cent in 2020-21 fiscal and to 2.5 per cent by FY2023.
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The distinction between the government‘s capital and revenue expenditure should be abolished, Fiscal Responsibility and Budget Management (FRBM) review committee head and former revenue secretary NK Singh said.
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With tax rate cut to 25 percent for small and medium enterprises with revenue under Rs 50 crore per year, we are ahead of the roadmap, says the CEA. This new tax rate creates a level playing field for all corporates, he adds.
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India‘s experience has reaffirmed the need for rules to contain fiscal deficits, because of the proclivity to spend during booms and undertake stimulus during downturns, the Survey notes.
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The five-member panel was tasked to review the FRBM Act in view of suggestions that there should be a broad range for government's fiscal deficit in place of the current practice of having a fixed target.
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According to Bank of America Merrill Lynch (BofA-ML), the N K Singh Committee would build cyclicality in setting fiscal deficit projections by switching to a target range (3-3.5 percent) from a point target of 3 percent.
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Sources say the report will be out before the Budget and will be shared directly with the government and not be made public.
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The government panel set up to review the working of FRBM Act has sought views of the Reserve Bank on the fiscal consolidation path and will submit its report next month.
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Sources say that the panel is looking at nominal GDP, inflation, interest rate impact post demonetisation.
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The Fiscal Responsibility and Budgetary Management (FRBM) Act, which is being reviewed under the chairmanship of N K Singh, would act in tandem with the inflation targeting of Monetary Policy Committee (MPC).
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Highlighting inconsistency in the
government data, the Comptroller and Auditor General (CAG)
today suggested that the Centre should take steps to ensure
that FRBM disclosure statements are transparent and complete
in all respects.
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"If it's a good monsoon, no doubt it will have a positive effect on economy in many ways. Inflation will come down, growth will increase, rural consumption will increase. That factor alone will be unambiguously positive for the Indian economy," Subramanian said.
