19 September, 2020

Ready For A Confidence Trick

We have been concentrating too much upon fiscal deficit as a measure of fiscal prudence.

Ready For A Confidence Trick
outlookindia.com
-0001-11-30T00:00:00+05:53

We have been concentrating too much upon fiscal deficit as a measure of fiscal prudence. In a country like India, which has huge infrastructure shortages, that is not the appropriate measure, because there is nothing wrong with a country like India running relatively high fiscal deficits provided those funds go into creating infrastructures, which is actually de-bottlenecking the economy and enabling higher economic activity. That itself leads to reduction in inflation. Talking about 4.1 per cent or 4.5 per cent fiscal deficit is neither here nor there.

What has been happening is that with the need to reduce the fiscal deficit—partly because of inflationary pressures and partly because of pressures due to balance of payments which has a very high current account deficit—public investments are the easiest to cut. However, public consumption is relatively difficult as things like subsidies have a very high political resonance. So reviving public investments is essentially, in a sense, re-engineering the budget.

Of course, public sector funding in...

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