[Feb] India & fiscal deficit Flashcards
Conceptual article
1) The Washington Consensus refers to a set of free-market economic policies supported by prominent financial institutions such as the International Monetary Fund, the World Bank, and the U.S. Treasury whose head offices are in Washington. The Consensus also emphasizes on Macroeconomic Stability (Low inflation, low fiscal deficit, low debt, low current account deficit, enough forex reserves etc).
2) Govt. of India since last few years (during Modi rigime) tried for fiscal consolidation [means reducing fiscal deficit (tried for around 3%) and debt (tried reducing it to 40% as per NK Singh committee recommendation) i.e. referred as fiscal orthodoxy in the article]. But in this Budget and Eco survey they have moved away from it and the Survey proposes a higher expenditure to push for growth and this Budget has also said that fiscal deficit is going to be 9.5% 2020-21 and 6.8% in 2021-22 which is quite high.
But this time World Bank and IMF (although supporting Washington Consensus) are also arguing for a departure from fiscal orthodoxy and proposing higher spending after the covid-19 pandemic. Higher fiscal deficit also leads to ratings downgrade, but if Rating agencies are also supporting the view of World Bank and IMF , so they m ay not degrade the rating this time even if our fiscal deficit and debt has shot up.
Both these institutions IMF and World bank proposes that public debt should not go beyond 100% of GDP. (In the second last column they talk about 10% -11% public debt…. I think this is wrong, what I think is author was trying to mention fiscal deficit rather public debt. Our public debt centre and state combined has crossed 70%)
3) The present economic survey has suggested that till the time the growth rate of the economy is higher than the interest rate (cost of borrowing), then the debt/borrowing is sustainable and we do not need to worry. [The same thing I have also mentioned in the present 4th edition of the book page no 118]
4) The author also raises question regarding privatisation of PSUs. When Govt. does large scale privatisation/disinvestment then Indian private companies also purchase the Govt. company assets BUT it is mostly the foreign investors (FDI) which purchase these assets. This will be in contradiction to our push for Aatma Nirbhar Bharat. But as per my view under Aatma Nirbhar Bharat Govt. is already opening sectors for FDI investment and Govt is attracting FDI under Aatma Nirbhar Bharat, so I do not think of any contradiction. Its just that you need to understand the broader vision/philosophy of Aatma Nirbhar Bharat.
5) Govt has earlier targeted to bring down the fiscal deficit to 3% by next year as per FRBM Act, but now its not possible, so Govt. will be amending this ACT.
