Fiscal package must be hiked to match global average, say experts

The economics and public policy experts also suggested the government look at postponing some non-essential expenditure for next year.HYDERABAD: India should significantly step up fiscal packages closer to the global average to address the Covid-19 outbreak crisis, advised a group of economists and public policy experts with ISB and an RBI body, while offering ways to control fiscal deficits through squeezing the overlapping subsidies.

Arguing that additional fiscal spending was the need of the hour, they, however, said India should also take the current crisis as an opportunity for preparing a roadmap for fiscal prudence.

The Rs 1.7 trillion fiscal packages that India announced amounted to 0.8% of GDP, which was far below the global average of 5%, said Shekhar Tomar of the Indian School of Business, and Anuragh Balajee and Gautham Udupa of the Centre for Advanced Financial Research and Learning (CAFRAL), a research body set up by RBI. The country can spend around 4.8% of GDP and still address the fiscal deficit problem by tightening the belt in subsidies of food, fertilisers and petroleum by substituting the expenditure rather than adding additional expenditure.

This squeezing up of subsidiaries also helps to reduce the overall fiscal deficit by 0.5-0.6% of GDP, they said.

The economics and public policy experts also suggested the government look at postponing some non-essential expenditure for next year.

Contraction in foreign demand and domestic consumption will lead to significant job losses in both the formal and informal sectors, they said, adding that even if the health crisis was averted, the concerns will remain on the longer-term impact on the economy. Issues like “whether there will be a long term fall in consumption, what will be the impact on the firm and bank balance sheet, whether the migrant labour will return to work soon, are questions that cannot be answered at this point.”

“The current crisis is an opportunity for implementing subsidy rationalisation, and a careful 360 degree look at the expenditure profile,” they said.

“In these uncertain times, the fiscal push thus seems to be the natural policy lever,” the experts said advising that the current spending should be managed in a way that the fiscal health remains good and India does not suffer from credit flight due to a credit rating downgrade.

“This is a real concern since another rating downgrade will put India’s sovereign rating in the non-investment grade,” they added.

Source: indiatimes.com

Comments (0)
Add Comment