ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Impact of Covid-19 and What Needs to Be Done

Tackling the Covid-19 outbreak will require political will and decisive actions from the government in terms of ramping up the healthcare infrastructure, ensuring public distribution of essentials to fulfil basic needs, and income transfers to the poor, among others. The government should not constrain such expenditures in view of maintaining the permissible limit of fiscal deficit. A higher fiscal deficit may not be inflationary now, since demand is drastically down.

How Has India Dealt With Global Economic Recession in the Past?

Whether or not the Indian economy is going into recession remains debatable. But without a correct diagnosis, measures to counteract the problems will be ineffective.

Reviving Fiscal Activism

Fiscal Consolidation, Budget Deficits and the Macro Economy by Lekha S Chakraborty, Sage, 2016; pp xix +197, ₹ 750.

In a Macroeconomic Bind

Despite it being the government’s last full budget before the general elections in 2019, the finance minister, constrained by his self-imposed fiscal deficit targets, settled for rhetoric and promises that were not backed with allocations. This frozen macroeconomic policy has foreclosed all options to adopt proactive measures that could make a difference to those who need support. Yet, the financial interests he wants to impress also seem disappointed.

Should States Target a 3% Fiscal Deficit?

India’s current fiscal rules target a 3% fiscal deficit for the central and state governments. Though states have largely adhered to their borrowing ceilings, subnational debt is proliferating. A significant reduction in subnational borrowing is required to stabilise the states’ debt around the desired level of 20% of gross domestic product. Symmetry should not be forced on central and state borrowing flows, given their widely divergent levels of debt stocks.

State Level Debt–Deficit Dynamics

An analysis of the debt and deficit of states based on the budget estimates of 2016–17 shows that almost half of them have a fiscal deficit target higher than the limit set in the Fiscal Responsibility and Budget Management Act. These states need to focus on the quality of expenditure and elimination of revenue deficit as per the framework proposed by the Fourteenth Finance Commission to enhance state-level capital spending.

Credibility and Portability?

Examining the Centralised Online Real-time Electronic Public Distribution System reforms introduced by the Government of Chhattisgarh to understand the processes and conditions under which such reforms strengthen accountability and affect the delivery of public services, it is found that while earlier reforms have been successful, the contribution of CORE PDS has been useful but limited. A significant finding was that technological fixes for social protection programmes are only feasible insofar as they work within the political logic of the context in question. CORE PDS reforms could not address the issues of power imbalances between shop owners and cardholders which continue to shape interactions between them. Introducing transparency, accountability and quasi-market reforms in this context offered limited possibilities in what they could achieve.

Beyond Fiscal Prudence and Consolidation

Since sustainable deficit could be different than the numeric fiscal rule, a review of the Fiscal Responsibility and Budget Management Act is timely and important. However, such a review should bear in mind that macro-stabilisation is a central function and the burden of fiscal adjustment should squarely fall on the union government keeping state debt and deficits withinFRBM limits. Maintaining the higher tax to gross domestic product ratio of last year will be key for fiscal prudence in 2016-17.

Budgetary Resource Mobilisation in Asia

Asian countries will need to cope with much greater complexity in both domestic resource mobilisation and in dealing with international tax issues. Fiscal laws and institutions will therefore acquire much greater importance. Capacity to use information technology in fiscal institutions in general, and tax administration and compliance in particular, will acquire greater urgency. Asian countries will also need to consider a regional forum to discuss tax issues and to share tax information. Indigenous fiscal research capability will also need to be strengthened.

Uttar Pradesh: Deeper into the Debt Trap

The fiscal scenario in Uttar Pradesh is showing definite signs of deterioration. Part of the reason for the slow growth of per capita income is the state's inability to raise resources; but the government's inability to allocate funds for productive development has compounded the situation.

Fiscal Policy and Growth

Can fiscal policy play a key role in the revival of the economy? The problem is that this question has had to be posed in the context of deteriorating fiscal balances of the centre and the states, whose combined deficit is today slightly worse after 10 years of reform. The states' gross fiscal deficit has deteriorated significantly. It is absolutely necessary, therefore, for the centre to be seen to be fiscally prudent, which will be a signal to the states of the centre's seriousness in regard to fiscal management. A contrary signal will undermine any restraint that the centre can bring to bear on the states.

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