It is time to make fiscal compression a priority
The government should get its finances in better shape as India’s post-pandemic economic challenges shift. Notably, both Bibek Debroy and the IMF have weighed in on its urgency
Bibek Debroy, chairman of the Economic Advisory Council to the Prime Minister, has voiced himself firmly in favour of medium-term fiscal consolidation. In an interview with Mint, Debroy said this ought to be a priority in the upcoming budget and the government should clearly convey a credible plan to achieve it over the next few years. While the Centre has said it will tighten its fiscal deficit to 4.5% of GDP by 2025-26 (it is budgeted at 6.4% this year), anxiety has been aired over this being too big a target. “There must be a credible plan to reduce it, a credible plan to persuade the rest of the world that India is serious about fiscal consolidation," Debroy said, “because otherwise, debt will not be sustainable." Indeed, we need the state to borrow less and free up budget space weighed down by a heavy interest burden. As we put pandemic disruptions behind us that bent both demand and supply in peculiar ways, we also need to contain repercussions of a fiscal bloat on our cost of living. A tighter belt is a doubtless must. The extent of it is in question.