Unravelling Fiscal Challenges: A Deep Dive into Economic Issues and Remedies

Session Report
Christeena Sabu

The IMPRI Impact and Policy Research Institute, New Delhi conducted an online spring school program, a one-month immersive introductory certificate training course, Fundamentals of Public Policy – Cohort 2: Awareness of Policies & Governance.

The training course aimed to provide participants with the knowledge and tools required to understand the complex landscape of public policy by exploring its justifications, limitations, and various aspects. Led by distinguished experts, it provided a well-rounded understanding of the rudiments of public policy.

On Day 3 of the Fundamentals of Public Policy – Cohort 2: Awareness of Policies & Governance course by Professor Mukul Asher ji, delivered a compelling presentation on the Key Concepts of fiscal policy, with applications for Bharat.

Diagnosing Fiscal Issues in the Economy

He began the session by emphasizing that to be a proficient fiscal economist and researcher one must be capable of identifying the fiscal issues present in a specific economy. The importance of sound fiscal management in an era where everything relating to finance well can be weaponized cannot be over-emphasized. After giving a brief description of the key areas he was going to touch on in the presentation. Using compelling graphs Prof. Asher ji depicted that India’s contribution to world GDP growth in 2000 was 2.7%, and by 2024, it is 6.2 expected to go to 7%.

Then he briefed about the global risks felt by executives which included extreme weather, AI-generated misinformation, cost of living crisis, etc.

He elaborated on revenue division into the various subheads within the states and the central government.

The discussion then moved on to the role of the government in fiscal policies. According to the 2021-22 report from RBI, the combined Center and State aggregate receipt of Bharat was 70.4 trillion. (29.8% of GDP) while the disbursements were INR 71.6 trillion ( 30.6% of GDP). Nearly a third of the expenditure goes through the government, and more than half of receipts and disbursements pass through the state.

Prof. Asher Ji stated that one of the weaknesses of India’s fiscal system is that there is little scrutiny of the state and urban and rule finances. It is a gap that needs to be addressed. He went on to further elaborate on the various items in the union government’s accounts.

He highlighted the increasing Capex expenditure in the recent years of the central government. In 2011-12 central Budget Capex was 1.6 trillion which is currently 11.1 trillion. PSU Capex went from 2 to 3.4 trillion. Total central Capex is about 4.4% of the significant GDP. He further added that food, nutrition-based fertilizers, Urea, and Petroleum were the main subsidies provided.

He explained the concepts of fiscal space which researchers look to diagnose. The integrated framework includes higher growth, reforming conventional taxes, cost recovery, and user charges. Other revenue sources such as nonconventional sources, better treasury management, monetizing government assets, municipal bonds, financing, and better expenditure management including procurement reform and value for money orientation can help in generating fiscal space.

The discussion extended to the comprehensiveness of the budget, a key aspect of fiscal diagnostics that doesn’t include leaving things outside the budget. Among the most important accomplishments of Finance Minister Nirmala Sitaraman is to expand the comprehensiveness of the Union budget and as a result, announcing trust and confidence in India’s fiscal and other data is critical.

Contingent liabilities are obligations that will become liabilities if certain events occur in the future. To be a contingent liability, it must be possible to estimate its value and more than a 50% chance of being realized. Public-private partnerships and projects are examples that can give rise to potential contingent liabilities.

The problem faced with contingent liabilities is that the cash accounting system of the government does not include pensions and other liabilities even when they become certain. For example, Kerala and West Bengal are on the old pension system. But since it is not a spent expenditure, it isn’t included in the expenditure. Even though India has around 69 million taxpayers, Prof. Asher Ji felt that it needs to be raised to 100 million.

Impact of Government and Court Judgements on the Country’s Economic State 

He also emphasized the importance of quantifying and conducting a comprehensive analysis of the economic and financial damage caused by arbitrary court judgments, which in the past 15 years alone amounts to trillions of rupees. India was a major exporter of copper and has been reduced to a major importer who bears a loss because the judiciary is economically illiterate. He stressed the need to analyze judiciary reforms.

He raised concerns about arbitrary court judgments impacting economic outcomes and discussed the ‘Mera Bill Mera Adhikar Scheme’ by the central government. Prof. Asher also touched upon the monetization of state assets, cost reduction measures, and tax collection rates in India compared to other G20 nations.

He then touched on the recent wages which were 28, 13, and 19 trillion in the public, private and informal sectors respectively. The topic of state debt was also elaborated where it was found that Punjab had the highest by 47% of the GSDP.

The problem with off-budget borrowing was also underlined. The government has put some restrictions on the off-budget borrowing, and on the guarantees that the State governments can give, which get to be contingent liabilities.

The SVAMITVA scheme was also touched upon which is a reformative step towards the establishment of clear property ownership rights in rural inhabited areas.

The concept of GeM (Government – e Marketplace) was introduced by Prof. Asher Ji.

Professor Asher Ji presented case studies on how GST sparks growth in the textile industry and the impact of the PM Awaas Scheme.

In his concluding remarks, he explained how fiscal diagnostics has become even more essential in the changing global geo-economics and geostrategic environment, in managing this emergence of disruptive digital manufacturing and other technology. This task requires analyzing many different aspects of the economy in addition to fiscal indicators at all levels of government, especially urban and rural.

Acknowledgment: This article was posted by Christeena Sabu, a research intern at IMPRI.

Read more at IMPRI:

Ensuring Safety of Women in Homes: Domestic Violence Laws and Other Measures

Psychological Dimensions: Understanding Trauma and Healing in Gender-based Violence