Economic survey 2021: The economic survey urged the government to be “more relaxed about debt and budget spending”, and even called for an overhaul of the established fiscal consolidation policy, especially during downturns growth and crises like the current one. He devoted a chapter to showing that growth leads to debt sustainability in the Indian context but not necessarily the other way around. “This is because the interest rate on the debt paid by the Indian government has been lower than India’s growth rate by standard, not by exception.”
The call for a more active counter-cyclical fiscal policy by key government economists comes at a time when the general government budget deficit is expected to reach 12% of GDP in FY21, double the target set in part of the FRBM descent path, even without allowing much additional budgetary spending from the Center and States. There is consensus against a tightening of the Centre’s budget for FY22, which is expected on Monday, and expectations are that the Centre’s fiscal deficit for FY22 will be estimated at 5-5.5% of GDP.
Explaining the rationale for the high budget spending at this point, the authors of the survey conducted by Chief Economic Advisor Krishnamurthy Subramanian predicted that India’s debt-to-GDP ratio would be sustainable even in the worst-case scenario envisioned in their models. for exercise 29.
“For emerging economies such as India, increased public spending in areas that stimulate the private sector’s propensities to save and invest can enable private investment rather than squeeze it out. In other words, in an economy with unused resources, an increase in public spending increases the overall demand of the economy, which may prompt the private sector to increase its investment in new machinery to meet the increased demand. , and therefore to put the unused resources to productive uses, ”noted the survey.
In line with the report of the FRBM Review Committee, chaired by NK Singh, India adopted the government debt-to-GDP ratio as the medium-term anchor for fiscal policy in India. While the panel believes that the combined debt-to-GDP ratio of the Center and the States should be reduced to 60% by 2023 (40% for the Center and 20% for the States), the Icra recently estimated that the Centre’s total liabilities are expected to worsen from 49.3% of GDP at the end of fiscal year 20 to 59% of GDP at the end of the current fiscal year.
Amid growing concerns about worsening economic inequalities, the Survey found that economic growth has a far greater impact on poverty reduction than inequality, and underscored the need to continue focusing on structural reforms to improve the productive capacity of the economy. “… Given India’s stage of development, India must continue to focus on economic growth to lift the poor out of poverty by expanding the global pie. Note that this political orientation does not imply that the objectives of redistribution are irrelevant, but that redistribution is only possible in a developing economy if the size of the economic pie increases, ”observed the authors of the survey.
Amid prolonged agitation by part of the farming community against laws governing the marketing of agricultural products, the survey claimed that these reforms “were further behind than even labor reforms, as existing laws maintained the Indian farmer enslaved to the local Mandi and their rent-seeking. intermediaries ”. “Agricultural reforms allow the farmer to sell where he gets the best price and thus allow sine qua non competition to create welfare for the small farmer.”
Another key inference from the survey is that the lockdown had a causal impact on saving lives and economic recovery. “India has thus taken advantage of successfully pushing back the peak of the pandemic curve until September 2020 thanks to the lockdown. After this peak, India was the only one to experience a drop in daily cases despite increasing mobility. “