Managing fiscal space

25 APR,2021 | MEDC


 

National debt is getting closer to levels previously considered unsustainable. According to the IMF, India’s debt-to-GDP ratio increased from 74% to 90% during the pandemic.  That’s a quantum jump, but comparable to the one experienced in that period by other emerging markets and advanced economies. Covid and the accompanying financial crisis have left India with a shrunken fiscal space to respond to another major shock. Policymakers need to introduce fiscal plans revolving around sustainability, which will also factor in concerns of a market repricing of risk, as that matters for global investors. This needs to be done immediately as fiscal space is uncertain and market expectations can turn abruptly. To facilitate rebalancing of the economy, fiscal policy may need to shift its focus subtly from infrastructure towards household support and green investment. Public finance strategies should continue to support broad-based growth and development. State-Centre cooperation in important structural fiscal reforms would enhance the efficacy of policy support. 

*Photo Credit: Google

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