Fiscal Consolidation

Even though India needs large infrastructure investments, the government should have prioritised fiscal consolidation

Govt move to tax high-value insurance policies may hit demand for long-term bonds: Analysts

Debt overhang offsets country's growth potential, says rating agency

Finance Minister Nirmala Sitharaman will have to do a tight-rope walk between staying fiscally prudent and general public expectations of lower taxes and a wider social security net, while at the same time firing the engines of the economy before general elections. Sitharaman will on Wednesday present her fifth straight budget at a time when the economy is slowing due to global headwinds and specific sectors need attention. In the run-up to the Budget presentation, expectations are rife that she may tweak income-tax slabs to provide relief to the middle class and increase spending on the poor through programmes such as the rural job scheme while ramping up financial incentives for local manufacturing. But all this she has to do while staying on the course of the fiscal consolidation path. To her aid are inflation falling below the target and buoyancy in tax collections. Healthcare, education and the rural economy may get a first call on such revenues as well as sectors that create

Govt must aim for faster consolidation

The government should not go in for an 'aggressive fiscal consolidation' in the upcoming budget as global risks have not abated, RBI Monetary Policy Committee (MPC) Member Ashima Goyal said on Wednesday. Goyal further said subsidies are expected to come down as food and energy inflation moderates. WPI inflation in food articles in November was 1.07 per cent against 8.33 per cent in the previous month. In the 'fuel and power' basket, inflation was 17.35 per cent last month. "Given fears of a global slowdown, this is not the time for aggressive consolidation. Sticking to small pre-announced steps on the path will minimise growth sacrifice, while moderating demand and the current account deficit, thus lowering the risk premium that keeps spreads high and raises the cost of government and private borrowing," she told PTI. India's fiscal deficit, the gap between expenditure and revenue, is projected to come down to 6.4 per cent in current fiscal ending March 2023, from 6.71 per cent in .

But govt asserts public debt is sustainable

Moody's Investors Service on Tuesday said the trend of gradual fiscal consolidation remains intact for India and going forward the country will see strong revenue performance and debt stablisation. Moody's Investors Service Senior Vice President Christian de Guzman said India's 'Baa3' sovereign rating balances its strength of relatively high economic growth and weakness of one of the most highly indebted emerging market sovereigns. The country's healthy financial system is reflected in deleveraging by Indian corporates. "We expect that India is going to be the fastest growing G-20 economy next year... (but) high inflation pose a downside risk to India's growth as households and businesses have less purchasing power," Guzman said in a Moody's virtual event 'Sovereign Deep Dive'. Moody's had earlier this month cut India's growth projection for 2022 to 7 per cent, from 7.7 per cent projected earlier. It expects growth to decelerate to 4.8 per cent in 2023 and then to rise to around 6.4

Mercifully, India has been spared the problems that foreign currency sovereign debt would have posed

Here is the best of Business Standard's opinion pieces for Wednesday

While the Centre has an escape clause to deviate from the fiscal consolidation road map by 0.5 percentage point of GDP in times of exigency, states were not given any such escape clause

In a Q&A, the finance ministry's Principal Economic Advisor also explains why he thinks the latest Budget is extraordinary

Centre may have to amend FRBM Act once again to achieve this, which isn't an issue as such an amendment does not require a two-third or three-fourth majority

Also call for efforts to enhance exports, build farm infrastructure

Ex-RBI governor says road map for fiscal consolidation starting 2022 would be prudent. Though expansionary fiscal policy is a pressing need, govt spend on health and education would benefit economy

Lay out a credible fiscal consolidation plan, reverse tax buoyancy decline, and boost non-tax revenues

According to the revised FRBM rules, as amended by the Finance Act, 2018, the central government debt stock should not exceed 40 per cent of GDP by the end of financial year 2024-25

Although, a gross tax revenue expansion of 12 per cent seems reasonable in light of the 10 per cent growth expected in the nominal GDP in FY20-21, the revenue assumptions made for FY20 seem aggressive

The share of capital expenditure has shown a declining trend over the last twenty years

The share of capital expenditure has shown a declining trend over the last twenty years