Fiscal action by the Centre must take over from monetary policy

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Source: Livemint

Relevance: Importance of fiscal policy measures to promote economic growth

Synopsis: Monetary policy has done its part, both through rate cuts and other forms of support, to get our economy going. Now, it’s the turn of India’s fiscal authority to step up efforts to promote growth.

What is fiscal policy?

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy.

Required fiscal policy actions

Fiscal policy actions are needed in these areas:

  1. On vaccination programme: There is need for ramping up of speed of vaccination twice at present and the central budgetary allocation of Rs 30000 crore should be treated as floor rather than cap.
  2. On Export: Exports are foremost at a time when world growth is projected at 6%. Indian merchandise exports touched a sensational $95 billion in the first quarter (April to June) of the current year.
  3. On Central expenditure on transfers to states, which could face procedural obstacles.
Issues faced by Export sector
  1. Levies outside the GST affect the exporter, such as on universal inputs like electricity, petroleum and diesel, affect the rupee price of exports.
  2. Issues with RODTEP
    • Rates not announced: The remission rates by product have not been announced yet, which may lead to exporters taking a cut to their margins or reduce their product price.
    • Small budgetary provisions: RoDTEP carries a budgetary provision this year of ₹13,000 crore, which is very small in comparison to the target of achieving $400 billion export.
Issues with Central transfers

New requirements for release of funds: Central transfers through CSS (centrally sponsored schemes) funds will flow in four tranches of 25% each, subject of course to evidence of usage, which is a standard feature of our financial controls. However, the states were required to open a separate bank account for a single nodal agency (SNA) for each CSS, and for each of the agencies at district or lower levels to whom the funds will flow, by 1 July 2021.

  • Impact of these new requirements: The administrative burden on states will increase enormously, to open all those accounts and maintain them as mandated, resulting in a reduction in the release of CSS funds simply because of states’ inability to cope with the new requirements.

Terms to Know

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