Medium-term fiscal consolidation path matters, says NIPFP’s Pinaki Chakraborty
The 2022 budget should keep one eye on growth but the other on fiscal consolidation. “There is no disagreement on the need to sustain growth, but we also need to move towards (fiscal) consolidation,” said Pinaki Chakraborty, director of the National Institute of Public Finance and Policy.
After peaking at 9.3%, India’s central government budget deficit is estimated at 6.8% for 2021-22, according to budget estimates. The strong growth in tax revenues will probably allow the government to achieve this objective.
“We are in a better position to deal with fiscal challenges. The way GST revenue has grown, the fiscal situation will be better than expected,” Chakraborty said in an interview with BloombergQuint, while declining to comment. the level of budget deficit. likely.
Economists see the government budgeting for a budget deficit of almost 6% in 2022-23, while warning that fiscal policy must remain supportive of growth. Chakraborty agrees but says that with a debt-to-GDP ratio of nearly 90%, there is no more room for extraordinary fiscal support.
“This is where reprioritization becomes important. If we look at the central and state budgets together, you see this type of reprioritization happening from the 2021-22 budget numbers. This needs to continue,” Chakraborty said.
In the 2021-22 budget, the government increased capital spending. States also planned higher capital spending, but were slow to spend in the first half of the current year.
“Capital spending is a very important part of driving growth, but the distribution of capital spending is also important. There, if we look at general government capital spending, then about two-thirds is are at the state level,” Chakraborty said, adding that 13 states reported revenue shortfalls for 2021-22 compared to seven or eight before the pandemic.