Home / Economy / ‘Fiscal discipline translates to stimulus’

NEW DELHI : The fiscal discipline followed by the government lowers the cost of capital for all sections of society, freeing up resources for a future stimulus, according to the Economic Survey 2022-23 tabled in Parliament by finance minister Nirmala Sitharaman.

The survey, a review of the economy and its management, also said the government’s “robust capital expenditure" could bring back the industry’s animal spirits, with early signs of private investment rebound already visible. State governments too have improved their finances after the pandemic, staying within their borrowing limits in the last three years.

“It is possible to imagine fiscal discipline turning into fiscal stimulus in future, as it would bring down the government’s cost of borrowing, lowering the present high share of interest payments in public expenditure and making more money available for economic development and social welfare," chief economic advisor V. Anantha Nageswaran said in his preface to the survey.

The survey said the Centre’s fiscal glide path will ensure more fiscal space for policy action in uncertain times.

Despite the additional fiscal resource pressures during the current fiscal, the Centre is well on track to achieve the 6.4% budget estimate for the fiscal deficit in FY23, the survey said. Fiscal deficit at the end of November 2022 stood at 58.9% of the budget estimate, lower than the five-year moving average of 104.6% of budget estimate during the same period.

“In reality, fiscal discipline translates into a fiscal stimulus for all sections of the economy through lower interest rates. As governments make their fiscal situations sustainable and stick to that path, the risk premium embedded in their interest rates comes down, thus lowering the cost of capital for all sections of society - on their educational loans, housing loans, car loans and business loans – and putting more money in their hands," the survey noted. The stimulus effect of fiscal deficit via diminishing risk-premium is likely greater for emerging economies than for advanced economies.

Nageswaran wrote that given India’s demographic advantage and economic growth potential in nominal terms (of around 10% to 12% on average in the coming years), the government’s fiscal parameters will continue to improve even as the Goods and Services Tax (GST) remains a source of durable and dependable revenue for the Centre and states.

The Centre is committed to disinvestments but external factors have posed a challenge in the past, the survey said. Between FY15 and FY23, as of 18 January 2022, about 4.07 trillion has been realized as proceeds from disinvestment through 154 transactions.

This includes 3.02 trillion realized from minority stake sales and 69,412 crore from strategic disinvestments. The FY23 budget had factored in a contraction of 15% on excise collections and in line with the expectation, excise duty collection has declined by 20.9% between April and November 2022 from the year-ago period.

Although customs duties were brought down on several items to control the inflation impact on edible oils, pulses, cotton and steel, high imports during the current year have led to a 12.4% growth in the customs collection from April to November period of 2022.

The central government’s revenue receipts have grown at a faster pace than the economic growth rate due to formalization of the economy, even as cleaner balance sheets of banking, non-banking and the corporate sectors have led to a fresh credit cycle, the survey said. Centre’s gross tax revenue registered a year-on-year growth of 15.5% during April-November 2022 and net tax revenue to the Centre after the assignment to states grew by 7.9%.

With improved balance sheets of the banking, non-banking and corporate sectors, a fresh credit cycle has begun as is evident from double digit growth in bank credit over the past months, the survey pointed out.

Gireesh Chandra Prasad
Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Recommended For You
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout