India Inc Calls for Balanced Fiscal Management
CII recommends fiscal deficit targets and state-level fiscal prudence measures for economic stability in Budget 2024-25
By : Madhusudan Sahoo
Update: 2024-12-08 12:35 GMT
New Delhi: Amid a slowing global economy, India Inc on Sunday urged the government to maintain a balanced fiscal management for macroeconomic stability with some more interventions to nudge the states towards fiscal prudence. It further said that this exercise would help forecast potential economic headwinds or tailwinds and assess their impact on the fiscal path.
Looking at the next year’s budget, leading industry body Confederation of Indian Industry (CII) has also suggested sticking to the fiscal deficit target of 4.9 per cent of gross domestic product or GDP for FY 25 and a target of 4.5 percent for FY26. However, the CII has also pointed out that overly aggressive targets beyond the ones mentioned could adversely affect growth.
“India has been growing rapidly amidst a slowing global economy. Prudent fiscal management for macroeconomic stability has been pivotal to this growth. We expect that the announcement in the Union Budget 2024-25 should keep the fiscal deficit at levels that will help reduce the debt-to-GDP ratio,” said CII director general Chandrajit Banerjee.
However, the industry body has also suggestedthat in preparation for this, the forthcoming budget could lay out a glide path to bring the central government's debt to below 50 per cent of GDP in the medium term (by 2030-31), and below 40 per cent of GDP in the long term. Such an explicit target will have a positive impact on India's sovereign credit rating and further on the interest rates in the economy,” the CII stated.
“To aid longer-term fiscal planning, the government should consider instituting fiscal stability reporting. This could include issuing annual reports on fiscal risks under different stress scenarios and the outlook for fiscal stability. The exercise will help forecast potential economic headwinds or tailwinds and assess their impact on the fiscal path,” it said.
Suggesting three interventions to nudge states towards fiscal prudence, the CII said that firstly, the states could be encouraged to institute state-level fiscal stability reporting. “Secondly, states have been allowed to borrow directly from the market, following the recommendations of the 12th finance commission. States also provide guarantees in case of borrowing by state PSEs, which have implications for the state's fiscal health. Third, the Centre could create an independent and transparent credit rating system for states to incentivise them to maintain fiscal Prudence,” it said.
The rating of states could be used to grant them greater autonomy in deciding how to borrow and spend. “Additionally, the central government can use the credit rating of states as one of the parameters in deciding transfers to states, including for schemes like special assistance as loan to states for capital expenditure. Such rewards will act as a strong incentive for state governments to prioritise fiscal prudence and fiscal sustainability of state finances,” said Banerjee.
Looking at the next year’s budget, leading industry body Confederation of Indian Industry (CII) has also suggested sticking to the fiscal deficit target of 4.9 per cent of gross domestic product or GDP for FY 25 and a target of 4.5 percent for FY26. However, the CII has also pointed out that overly aggressive targets beyond the ones mentioned could adversely affect growth.
“India has been growing rapidly amidst a slowing global economy. Prudent fiscal management for macroeconomic stability has been pivotal to this growth. We expect that the announcement in the Union Budget 2024-25 should keep the fiscal deficit at levels that will help reduce the debt-to-GDP ratio,” said CII director general Chandrajit Banerjee.
However, the industry body has also suggestedthat in preparation for this, the forthcoming budget could lay out a glide path to bring the central government's debt to below 50 per cent of GDP in the medium term (by 2030-31), and below 40 per cent of GDP in the long term. Such an explicit target will have a positive impact on India's sovereign credit rating and further on the interest rates in the economy,” the CII stated.
“To aid longer-term fiscal planning, the government should consider instituting fiscal stability reporting. This could include issuing annual reports on fiscal risks under different stress scenarios and the outlook for fiscal stability. The exercise will help forecast potential economic headwinds or tailwinds and assess their impact on the fiscal path,” it said.
Suggesting three interventions to nudge states towards fiscal prudence, the CII said that firstly, the states could be encouraged to institute state-level fiscal stability reporting. “Secondly, states have been allowed to borrow directly from the market, following the recommendations of the 12th finance commission. States also provide guarantees in case of borrowing by state PSEs, which have implications for the state's fiscal health. Third, the Centre could create an independent and transparent credit rating system for states to incentivise them to maintain fiscal Prudence,” it said.
The rating of states could be used to grant them greater autonomy in deciding how to borrow and spend. “Additionally, the central government can use the credit rating of states as one of the parameters in deciding transfers to states, including for schemes like special assistance as loan to states for capital expenditure. Such rewards will act as a strong incentive for state governments to prioritise fiscal prudence and fiscal sustainability of state finances,” said Banerjee.