06/10/2021 - Indian Economy

KEY POINTS

·        India’s public debt  to gross domestic product (GDP), at constant prices, increased to a record high of 100.86 per cent in 2020 as against 76.86 per cent in 2014, as per the data from the Reserve Bank of India.

·        It is well-recognised that excessive public debt leads to higher risk premium in interest rates, which results in reduction of private investment (crowding out effect) as well as contraction of GDP in the long run.

Suggested measures

Privatisation of loss-making PSUs:

·        The government may think of privatising loss-making public sector undertakings (PSUs) such as Air India.

·        Further, ‘minimum government and maximum governance’ principle may be adopted in privatising any PSU.

Prudential stance:

·        As per the Fiscal Responsibility Budget Management (FRBM) Act 2003, it is the onus of the government to control fiscal prudence and to achieve long term macro-economic sustainability.

Leveraging of PFMS:

·        As part of better fiscal deficit management, the Public Financial Management System (PFMS) should be leveraged to the maximum financial accountability.

PPP model in social schemes:

·        The government may think of public private partnership (PPP) model in social schemes such as Deen Dayal Upadhyay Grameen Kaushalya Yojna (DDU-GKY).

Harmonisation of tax regime:

·        The government should create an investor-friendly environment for additional source of financing to replace the high public debt.

Robust expenditure planning, privatising loss-making PSUs, reducing dependence on fossil fuels are among steps that will help

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