It’s Time to Reform How India Spends Borrowed Money

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.