The Hindu Editorial Notes or Summary
Note- today we have only One Editorial
Ques. Differentiate fiscal and competitive federalism in India and how they can boost nation’s economy?
Topic- THE COVID-19 FISCAL RESPONSE AND INDIA’S STANDING
- Fiscal Policy In India with certain issues.
WHY IN NEWS ?
- India’s fiscal response turns out to be inadequate when compared with the other countries with similar levels of per capita income. As of early July, the gap seems to have narrowed .
CHALLENGES AND COMPARISON :
- Due to the blurring of the distinction between fiscal and monetary components, ensuring comparable and accurate figures for fiscal responses is a challenge.
- For example, the total Atmanirbhar package is billed at 10% of GDP by the government.
- While the headline number for India’s fiscal response in international databases is around 4% of GDP.
- But some estimated that the new fiscal outlay is around 1.7% of GDP.
- Vietnam, Indonesia, Pakistan, and Egypt, all while averaging less stringent measures than those in India, have announced stimulus measures that are as large or more substantial, as a shareholder of GDP.
FINANCING RESPONSES OF DEVELOPING COUNTRIES :
- Developing countries are resorting to drastic means to finance COVID-19 responses.
- Actions so far include the amendment of legal budget limits.
- Some are also exploring enhanced issuance of bonds-including a ‘pandemic bond’ by Indonesia.
- Central banks in many emerging economies are experimenting with purchases of public and private bonds in the secondary market (quantitative easing).
- Or some are directly purchasing government bonds on the primary market (monetising the deficit).
- In India, the debate continues over whether the Indian government should invoke the “escape cause” in the FRBM Act.
- Escape clause will enable the central bank to directly finance the deficit.
CASH TRANSFER: LESSONS FOR INDIA:
- Demand-side interventions announced by other developing countries could provide lessons for additional measures in India.
- Of the World Bank’s list of 621 measures across 173 countries, half were cash-based.
- While only 2% related to public works, a clear indication of the popularity of cash transfers over public works for income support,
- Countries have also significantly expanded coverage of their cash transfer programmes from pre-COVID-19 levels.
- Bangladesh and Indonesia have increased the number of beneficiaries by 163% and 111%, respectively.
- Indonesia’s cash schemes now cover more than 158 million people or 60% of the population.
- Additionally, the Indonesia central government has directed village authorities to focus their budgets on a cash-for-work programme.
- India could take these actions about cash transfers into account in decisions about expanding existing transfer programmes or even creating new ones.
- India has been a leader in employment guarantee policies with its flagship MGNREGA programme.
- This is the right time to expand entitlements MGNREGA.
- There is a need to introduce an urban version of the MGNREGA.
- In India, one reason for the subdued fiscal response and the resort to monetary measures is a concern with the debt-to-GDP ratio.
- However, aggregate demand and confidence in the economy have slumped and may not recover for many months.
WHAT IS FISCAL POLICY ?
- Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy. It is the sister strategy to monetary policy through which a central bank influences a nation’s money supply. These two policies are used in various combinations to direct a country’s economic goals.
Tools of fiscal policy:-
- Public expenditure
- Public debt
- Plan and Non-Plan Expenditure
Public Debt means debt on the Govt -It is accumulated borrowing of the Govt
Components of Public Debt:
- Internal Debt or liabilities
- Other Liabilities
- External debt
Types of Govt. funds
- Consolidated Fund of India
- Contingency Fund
- Third Fund also called Public accounts
Debt Trap – Situation where the borrower has to borrow again for the payment of an instalment on the previous debt. A borrower unable to meet debt service obligations without borrowing is known to be in debt trap.
- Fiscal Responsibility and Budget Management Act (FRBMA), 2003
- The objective of this FRBM Act is to impose fiscal discipline on the government.
- It means fiscal policy should be conducted in a disciplined manner or in a responsible manner i.e. government deficits or borrowings should be kept within reasonable limits and the government should plan its expenditure in accordance with its revenues so that the borrowing should be within limits.
- Additional fiscal outlay — in the form of cash and in-kind transfers and expanded public works schemes — would save lives and jobs today and might prevent a protracted slowdown.
- Not spending more now, therefore, might only worsen the debt-to-GDP ratio if growth remains depressed.