Fiscal Policy

Only a substantial step-up in savings and investments can ensure sustained growth.

Erratic fiscal and monetary policies tend to slow down growth and fuel inflation.

Fiscal sustainability is a key element for subnational governments in India as fiscal policy is the only instrument that can be used to correct economic malady. As far as state government finances are concerned, subnational financial stability can be understood as the capacity to generate adequate resources to afford their expenses on a sustained basis. An analysis of subnational fiscal sustainability, through a study of utilisation patterns of total debt receipts of state governments, is undertaken for 17 major Indian states during 1980–81 to 2014–15. The results indicate wide fluctuations among the states. While Kerala, Punjab, and West Bengal have shown poor and unproductive utilisation of debt receipts, Punjab has witnessed maximum instability.

Deadly and frightening as it appears, it is still too early to estimate the severity of India’s Covid-19 second wave. Unlike the transatlantic countries where it appears to have peaked, India’s second wave is still trending upwards. While the second wave is more devastating, India’s unpreparedness is evident. India needs to recognise that such pandemics will come again. It needs to diversify and secure its supply chains, vaccine output, and upgrade its poor healthcare infrastructure. The Indian economy has been badly hit by the pandemic, with one of the highest output losses amongst major economies. One of the possible reasons for this is the limited fiscal support despite a stringent lockdown, with most of the heavy lifting done through monetary measures. Going forward, its economy needs to overcome several challenges before it can return to its former high growth trajectory.

The share of resources distributed in the stimulus package to the farmers and labourers is very less as compared to other stakeholders of the economy. As public policy is influenced by bargaining power through intense lobbying, low distribution of resources towards farmers and labourers could be due to their low bargaining power. Collective action is required to bargain or lobby for resources. The farmers are adversely placed with regard to collective action because the transaction cost of organising collective action is higher but their ability to bear the cost is lower. The industry is placed in a much better position on both these counts. The inability of farmers to provide critical minimum resources for collective action may further weaken their bargaining position.