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

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Fiscal Consolidation and FRBM in the COVID-19 Context

The fiscal consolidation projections provided by the Fifteenth Finance Commission, including its alternative paths, have been rendered out of alignment because of the COVID-19’s deleterious economic impact.The commission has also recommended that the centre’s Fiscal Responsibility and Budget...

Post-COVID-19 Paths to Fiscal Consolidation

In order to analyse how the excess of growth over the real interest rate can best contribute to Indian post-COVID-19 debt adjustment paths, the article draws on historical experience, past adjustment episodes and special features of emerging markets. It notes that a countercyclical primary deficit will contribute, and together with a substantial g–r gap, lower debt most efficiently, creating space for adequate fiscal response to future shocks.

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.

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.

Budget 2016: Behind the Symbolism

The Modi government tries hard to signal a makeover but beyond the symbolic it does not change much.
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