Fiscal prudence still matters

Newspaper Rainbow Series 11th May 2020 Save

Context: Govt. needs to spend more but should also commit through institutional reforms to transparency and prudence. And also, it needs to think beyond borrowings to fulfill its fiscal needs.

Ensuring Fiscal Prudence

Not to prioritise the public sector: Government allocates to itself, too many of the nation’s financial savings, leaving too little for the private sector to take risks on investment.

Less dependence on States: Meet all its goods and services tax (GST) compensation to states.
Solid reforms to the fiscal responsibility framework: Absolutely transparency about its plans.

Concerns with borrowing : Govt. has increased its borrowing by 53.48%, and will have detrimental effect in the economy:

Affect bond yields and might create confusion in financial markets.

Additional borrowing might largely be used for shortfall in revenue receipts and no capital formation is to be expected.

No borrowing programme for the States.

Way forward:

Institutional reforms like National fiscal council for transparent and credible fiscal manipulations must be implemented.

Only borrowing is not enough, credible macroeconomic plan should be presented and Transparency and effective communication at this stage can contain considerable damage.