The government should not budget for a low fiscal deficit knowing fully well that it will not be achieved, several prominent economists told the Fifteenth Finance Commission on Thursday, adding that the overall quality of budgeting needed to improve.
The economists also suggested that the Fifteenth Finance Commission should take a consolidated view of public debt, including off-budget transactions and the debt taken on by public sector enterprises.
These suggestions were made during a meeting in Mumbai between economists and officials of the Fifteenth Finance Commission, including its Chairman N.K. Singh.
The economists pointed out that there was a need to adopt a total view on the borrowing requirements of the consolidated public sector that should include off-budget transactions, borrowings of the public sector undertakings, and contingent liabilities of both the union and state governments.
Further, the economists pointed out that it was important to carefully examine whether the increased tax devolution by the 14th Finance Commission had led to improvements in the social spending of state governments.
“The meetings have sharpened the Commission’s understanding on some of the key things that need to be kept in mind for continued macroeconomic stability,” Mr. Singh said in a note following the meeting.
“A careful examination was made into the issues of debt, particularly as stated in the RBI’s Annual Report on State Debt Figures. The overall debt picture of the states and the way they have complied with the ingredients of the Macroeconomic Management Bill is being looked into closely.”
Demand-supply mismatch
The economists also said that there was a possible mismatch between the demand and supply of state development loans, which could affect the cost of borrowings of state governments in the next five years.
Regarding the devolution of taxes to the states, the economists also said that there needed to be an incentive structure built into the devolution mechanism, and that the mechanism must also take into account the composition of the population, since many states are seeing a significant change in their proportion of the elderly populations.
“The projections given to us by the Department of Revenue suggest very healthy buoyancy in direct taxes,” Mr. Singh said. “Projections of indirect tax collections, especially with regard to GST, have not been as healthy. We are going to have another round of discussions with Department of Revenue based on the latest figures of the improvements in GST behaviour and what changes can be made to make it more buoyant, stable and predictable.”
The economists present at the meeting included Rupa Rege Nitsure, Saugata Bhattacharya, Prachi Mishra, Samiran Chakraborty, Pranjul Bhandari, Ashu Suyash, Anjan Deb Bose, Naresh Takkar, Soumya Kanti Ghosh, Ajit Ranade, Ashima Goyal, and S.L. Shetty.
