It’s Time to Reform How India Spends Borrowed Money

Livemint     12th February 2021     Save    

Context:  While the Union Budget 2021-22 acknowledged India’s need to diverge from its fiscal consolidation path, yet ensuring the efficient use of that resources is as important.

Trends of Public Expenditure and Borrowing in India

  • Rising interest burden on debt: estimated to increase by Rs 78,000 crore in the current fiscal and  Rs 1.14 trillion in the next. 
  • Reduced productive expenditures: due to the high-interest on debt bill.
    • Revenue expenditure for agriculture and allied services (by Rs 2.01 trillion) and rural employment (by Rs 39,000 crore) has been reduced.
    • Capital expenditure on railways, police reforms and urban development has been reduced (Rs 29,000, Rs 4,926 and Rs 1,721 crore).
  • Sources of receipts: Capital account, market loans and 14-day treasury bills are key sources of receipts has been consistently higher than the revenue receipts. 

    Way Forward: 

    • Additional grants for strengthening economy: to specific states for the key sectors of health, education, agriculture, roads, districts and blocks, the judiciary, and statistics. (as recommended by the 15th Finance Commission)
    • Constitution of an independent fiscal council:  to provide fiscal forecasts, evaluate fiscal performance, and set and monitor compliance with fiscal targets.
    • Improve tax-GDP ratio: by raising finances from several sources.
    • Debt management:
      • Create Independent public debt management cells: under States, for them to borrow efficiently. 
      • Debt management at the central level should similarly be dispassionately reviewed.