New Delhi: Indian economy is in a very bad situation, in fact, in a historic recession, and it will require a quantum jump in public expenditure, both capital and revenue expenditures to revive the economy, said a top economist, adding that in such a situation, the government should forget the FRBM roadmap for at least two years.
Professor NR Bhanumurthy, a noted economist and vice-chancellor of Bengaluru based BASE University, says the country is passing through a very disturbing year and any attempt to estimate fiscal deficit number at this stage will only be speculation as the economy is coming out of Covid-19 pandemic.
The economist says the only way for the finance minister Nirmala Sitharaman to tide over the difficult period is to forget the path of fiscal consolidation laid down by the fiscal responsibility and budget management act as she struggles with increasing expenditure requirement at a time when revenue collection has been severely affected.
In the first 8 months (April-November) of the current fiscal year, the Centre collected the tax revenue (net to the Centre) of just Rs 6.88 lakh crore against the budget projection of over Rs 16.36 lakh crore for the year.
“One way to reconcile is that forget the FRBM roadmap for one year, not just for the current year but also for the next year,” Professor Bhanumurthy told ETV Bharat.
He says the situation may improve in the next fiscal as most of the forecasts are predicting a high growth rate, including some who predict a double-digit growth in 2021-22.
“If that is the case, we may see much better revenue mobilisation next year. It will help the finance minister to narrow down the gap between the expenditure as well as revenues,” he explained.
The economist says despite the fall in revenue collection the government will have to spend more than what it did in the last few years to support the ailing economy.
According to Professor Bhanumurthy, there is still scope for increasing the expenditure as the government did not opt for large fiscal stimulus measures during the lockdown period.
“Until now the government has not allowed the fiscal situation to slip away,” he said.
“Despite being a deep recessionary period, we see a slightly better fiscal deficit number than one would have expected,” he added.
Professor Bhanumurthy says another way for the government to augment its revenue collection is to reduce the tax rate, particularly the GST rates as low tax rates would lead to more compliance and revenue buoyancy.
“It may have a multiplier effect on the economy,” he observed.
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