Day: June 1, 2021

Understanding Fiscal Policy (2/3)

This post should be read as a continuation of yesterday’s post.

What are the things to keep in mind when talking about fiscal policy for India in 2021? Sajjid Chinoy mentions two, and we’ll deal with the first of these in today’s post. It is called “Recalibrating To New Realities“

  1. Sajjid Chinoy first points out the fiscal deficit situation. Please, whether you are an economics student or otherwise, familiarize yourself with the budget at a glance document. My take on the fiscal deficit for the FY21-22 is that there is no way on earth we’re going to be able to stick to the budgeted 6.8%. Tax revenues will be lower, borrowing will be higher, and I’m not buying the INR 1,75,000 crores disinvestment target. I hope I am wrong!
  2. He recommends not cutting expenditures even if budgeted revenues don’t materialize, and expanding MNREGA funding – and I completely agree.
    We’re getting into the weeds a little bit, but he also speaks about cash transfers instead of MNREGA given the pandemic, and I agree there too. Effectively, he is saying that people might not choose to apply for work because of the fear of getting infected, so drop the cash for work requirement: just transfer.
  3. “Double down on achieving budgeted asset sales targets, because this will provide space for more debt-free spending.” is one of his recommendations. I agree with the message, but find myself to be (very) cynical about the likelihood of this happening. We haven’t managed to meet these targets even once, and were off by an impossibly large magnitude this year, so I don’t see this happening. Again, I hope I am wrong.
  4. I’m paraphrasing over here, but the implicit request by the author is to keep capital expenditure sacrosanct (because of the multiplier effect). The implicit bit is the corollary: if sacrifices must be made, it is in revenue expenditure. The cynic in me needs to be reined in, but I’ll say it anyway: good luck with that.((Let me be clear, I agree! I just don’t see it happening, that’s all))
  5. Finally, he makes a request of monetary policy, that is acts as a complement to what is written above. That is, monetary policy should not worry about inflation too much this year. It is more complicated than that, of course, but that’s a separate blogpost in it’s own right.