Economic Survey 2021: The Economic Survey exhorted the government to be ‘more relaxed about debt and fiscal spending’, and even argued for a rethink on the established fiscal consolidation policy, specifically in the course of development slowdowns and crises like the present one. It devoted a chapter to show that development leads to debt sustainability in the Indian context but not necessarily vice-versa. “This is because the interest rate on debt paid by the Indian government has been less than India’s growth rate by norm, not by exception”.
The contact for more active counter-cyclical fiscal policy by major economists in the government comes at time when the basic government fiscal deficit is noticed touching 12% of the GDP in FY21, double the aim set below the FRBM glide path, even devoid of enabling substantially further budgetary expenditure by the Centre and states. There is a consensus contact against a tightening of the Centre’s Budget for FY22, which is due Monday, and expectations are that the Centre’s fiscal defict for FY22 will be estimated at 5-5.5% of GDP.
Explaining the rationale for higher fiscal spending at this juncture, the authors of the survey led by chief financial adviser Krishnamurthy Subramanian prognosticated that India’s debt-to-GDP will be sustainable even in the worst case envisaged below their models in FY29.
“For emerging economies such as India, an increase in public expenditure in areas that boost private sector’s propensities to save and invest, may enable private investment rather than crowding it out. In other words, in an economy that has unemployed resources,an increase in government spending increases the aggregate demand in the economy, which may induce the private sector to increase their investment in new machinery to cater to the increased demand, and hence put the unused resources to productive uses,” the survey noted.
Adhering to the report of the FRBM Review Committee, headed by NK Singh, India has adopted public debt-to-GDP ratio as a medium-term anchor for fiscal policy in India. While the panel’s view is that combined debt-to-GDP ratio of the Centre and states need to be brought down to 60% by 2023 (40% for the Centre and 20% for states), Icra has not too long ago estimated that the total liabilities of the Centre are projected to worsen from 49.3% of GDP at the finish of FY20 to 59% of GDP at the finish of the present fiscal.
Amid increasing issues more than worsening financial inequalities, the Survey located that financial development has far higher effect on poverty alleviation than inequality, and underscored the want for continued concentrate on structural reforms to improve the economy’s productive capacity. “…given India’s stage of development, India must continue to focus on economic growth to lift the poor out of poverty by expanding the overall pie. Note that this policy focus does not imply that redistributive objectives are unimportant, but that redistribution is only feasible in a developing economy if the size of the economic pie grows,” the authors of the survey observed.
Amid the prolonged agitation by a section of the farming neighborhood against the laws governing agriculture advertising and marketing, the survey asserted these reforms “were more overdue than even the labour reforms as the existing laws kept the Indian farmer enslaved to the local Mandi and their rent-seeking intermediaries”. “The agricultural reforms enable the farmer to sell where he gets the best deal and thereby enable competition that is sine qua non to create welfare for the small farmer”.
Another essential inference in the survey is that the lockdown had a causal effect on saving lives and the financial recovery. “India thus benefited from successfully pushing the peak of the pandemic curve to September 2020 through the lockdown. After this peak, India has been unique in experiencing declining daily cases despite increasing mobility.”