Fiscal activism embraced by advanced economies not relevant for India: Economic Survey

It added that India’s experience has also highlighted the danger of relying on rapid growth rather than steady and gradual fiscal and primary balance adjustment.

Published - January 31, 2017 01:46 pm IST - NEW DELHI

Chief Economic Adviser Arvind Subramanian.

Chief Economic Adviser Arvind Subramanian.

Fiscal activism — giving a greater role to counter-cyclical policies and attaching less weight to curbing debt, embraced by advanced economies is not relevant for India, the Economic Survey 2016-17 tabled in Parliament on Tuesday said.

The Survey also pointed out while the basic tenets of the Fiscal Responsibility and Budget Management Act (FRBM) Act 2003, remain valid, the operational framework needs to be modified for the fiscal policy direction of “India of today.”

“Since the 2008-09 Global Financial Crisis (GFC), internationally, fiscal policy has seen a paradigm shift from the emphasis on debts to deficits, arguing for greater activism in flows (deficits) and minimizing concerns about sustainability of the stocks (debt). But India’s experience has reaffirmed the need for rules to contain fiscal deficits, because of the proclivity to spend during booms and undertake stimulus during downturns,” an official statement said.

It added that India’s experience has also highlighted the danger of relying on rapid growth rather than steady and gradual fiscal and primary balance adjustment to do the “heavy lifting” on debt reduction.

“In short, it has underscored the fundamental validity of the fiscal policy principles set out in the FRBM. Even as the basic tenets of the FRBM remain valid, the operational framework designed in 2003 will need to be modified for the fiscal policy direction of India of today, and even more importantly the India of tomorrow,” the statement said.

It added that this setting out a new vision through an FRBM for the 21st century will be the task of the FRBM Review Committee.

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