India needs to maintain its financial and fiscal stability: Expert View


India needs to maintain its financial and fiscal stability even as the fiscal deficit inevitably inflates. During this crisis as it experiences a shortfall in revenue and there is a need for more public spending, says the President of Confederation of Indian Industry (CII), Uday Kotak.

 In simple words, a fiscal deficit means the difference between the total income of the government and total expenditure, usually it is expressed as a percentage of the GDP. In FY2019-20, the fiscal deficit of the central government was 4.6% of GDP against the planned 3.5%.

In the current FY2020-21 also it is expected to follow a similar pattern as the economy is facing an unprecedented crisis. Both the central and the state governments may not earn taxes as expected, leading to a higher fiscal deficit this year. The current estimates imply that the combined fiscal deficit of both the central and the state governments could surpass 10% of the GDP during this year.

 The fluctuation in fiscal deficit is not something that the government has to be concerned about, it also affects the populace of India. On the backdrop of the ongoing crisis, the central and some state governments have decided not to increase dearness allowance and dearness relief that they pay to their employees and pensioners. The governments have also increased the taxes on petrol and diesel. People are continuing to pay more prices than they should have given the massive downfall in oil prices globally.

Currently, the government has been borrowing to finance their fiscal deficits. The Reserve Bank of India (RBI) is trying to pin down interest rates and has already reduced rates on bank fixed deposits (FDs). The government employees, both at the central and the state level, are enduring the cost of the higher fiscal deficit. The indirect impact of this loss of income will mean lesser spending from the government employees and pensioners, this will affect the incomes of many other related individuals and businesses.

To gather, the state has to glance at innovative means such as selling land banks, work on goods and services tax (GST), and income-tax rates, to shore up tax revenues. Also, it needs to prioritize its expenditure pattern. As things stand, it seems like the citizens will have to shoulder the cost of falling tax revenues and a higher fiscal deficit.


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