A Fiscal Road Map

Business Standard     2nd October 2020     Save    

Context: Union Finance Minister Nirmala Sitharaman told that the government has not yet decided either the amount or the timing of another fiscal stimulus to revive the econom.

Some Challenging predictions: 

  • Need for additional borrowing:
  • As of now, government’s borrowing plan for the current year has been left unchanged at Rs 12 trillion.
  • But this will obviously change once it decides to increase spending to revive demand
  • Expecting a near double-digit economic contraction: Most private-sector economists expect a near double-digit economic contraction in the current fiscal year.
  • Increase in Public debt: . The government has increased its borrowing target by over 50% compared to the Budget estimate, and public debt is likely to go well over 80% of gross domestic product in the current fiscal year.

Right time for another fiscal stimulus

  • Decline in growth:  Indian economy already contracted by about 24%  in the first quarter of the current fiscal year
  • Access to data for making assessment: 
  • As the first half of the financial year is over, the government has enough data to make a realistic assessment
  • This will help ascertain the kind of support the economy needs. 

Steps to be taken

    • A clear road map for fiscal intervention: For this, use the assistance of a panel of external experts.
    • Use whatever fiscal space available at the earliest: This will contain the damage and help revive economic activity.
  • Government should clear confusion in the markets, which believe the government is just postponing the inevitable on increasing its borrowing to support economic activity.
  • Borrowing from domestic and international sources: Government should work on a combination of instruments like asset sales and borrowing from domestic and international sources to raise resources.
  • Proactive approach to economic management

Conclusion: In such unprecedented situations, the government’s response might need to be constantly refined. But delays in decision-making would only complicate matters.