A Fiscal Road Map

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.