23 June, 2021

Spend To Create Assets

The author is professor, Indira Gandhi Institute for Development Research, Mumbai

Abhijit Bhatlekar
Spend To Create Assets
First, the good news. The fall in interest rates has cut interest payments on debt; the revival in industry and in imports is boosting tax collection. This will help achieve the fiscal deficit target of 5.4 per cent. Still, the share of public investment in GDP has revived only marginally from its 1997-98 nadir. Since private investment has become much more volatile after the reforms, it is important for public investment in social and physical infrastructure to remain steady at high levels. A government convinced of its inability to borrow will hesitate to ensure this.

Higher growth and lower interest rates are essential to reduce public debt. The dependence on fiscal deficit as a signal of fiscal health neglects this aspect. It is the revenue deficit and wasteful expenditure that has to be cut. Moreover, the finance capital lobby keeps pointing out the measurement omissions that, if removed, would increase the size of the deficit. Examples are state deficits and governmental guarantees. But the states do not have sovereign rights and therefore their deficit does not have the...

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