Refer - The Hindu
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IAS Parliament 4 years
KEY POINTS
· The latest data released by the Ministry of Statistics indicate a Consumer Price Index (CPI) inflation rate of 6.7% for August 2020.
· The policy challenge for the remaining part of the fiscal year is to minimise this sharp contractionary momentum in real and nominal growth.
· A sharp contraction in nominal GDP growth has significantly adverse implications for the prospects of central and State tax revenues, which may both contract. The revenue calculations of the Budget were made on the assumption that the nominal income of the country would grow at 10%.
· The International Monetary Fund, in its June 2020 update of the World Economic Outlook, estimated the fiscal deficit of India and China at 12.1% of GDP. All the other countries except the United States and a few others have a deficit lower than this.
· The dollar as a reserve currency has its own advantages and this benefits the U.S. Coming back to India’s fiscal deficit, there are not adequate resources to support a fiscal deficit of nearly 14% of GDP.
· All this will therefore require substantial support from the Reserve Bank of India which will have to take on itself, either directly or indirectly, a part of the central government debt. In the direct mode, the RBI takes on the debt directly from government at an agreed rate. It took India long to move away from the automatic monetisation of debt. The economic situation warrants enhanced government expenditure.
· The fiscal deficit will go well beyond the mandated level — more than twice the mandated level. This has to be accepted. It appears that governments are withholding expenditure.
· Perhaps the best course of action would be to keep the combined fiscal deficit at around 14% of GDP in the current year and find ways to finance it. This will have to be brought down gradually. It may take several years of normalisation.
