India’s monetary and fiscal frameworks need recasting: EY

By Sarkaritel August 29, 2020 18:16

New Delhi [India], August 29 — India’s monetary and fiscal frameworks are marked with several inconsistencies and certain structures need to be recast to pace up the growth, global consultancy firm Ernst & Young (EY) has said.

On a positive note, it said the first quarter (April to June) is likely to be the worst of current financial year (2020-21) due to economic disruptions caused by Covid-19 pandemic and recovery is expected ahead.

“High-frequency indicators for India are giving positive signals after the first two months of pandemic. Clearly, Q1 FY21 growth is likely to be the worst among the four quarters of FY21,” EY India said in its latest thought leadership publication Economy Watch.

“However, one adverse development is the slowing down of bank credit growth to 5.8 per cent in the fortnight ending July 17,” said D K Srivastava, Chief Policy Advisor at EY India.

The Reserve Bank of India’s August survey of professional forecasters has indicated a mean growth forecast of minus 22.8 per cent in Q1 FY21. “Any growth number that is better than this would come as a positive news,” said Srivastava.

EY also reviewed India’s monetary and fiscal policy frameworks which have guided policymaking during the last five years, pointing out a lack of coordination between the pursuits of fiscal and monetary authorities to ensure desirable growth and inflation outcomes.

It recommended re-amending the 2018 version of Fiscal Responsibility and Budget Management Act (FRMBA). The new FRBMA should bring back revenue account balance as a key target for both central and state governments.

“It is argued that the fiscal responsibility frameworks of central and state governments and the monetary policy framework require re-examination in view of the likely slippage in the debt-GDP ratio of the Centre, state governments and on their combined account, and the challenges to growth and inflation posed by the ongoing pandemic,” said Srivastava.

Besides, EY said infrastructure-focused fiscal stimulus is key to India’s recovery. It said public sector borrowing requirement at 15 per cent of GDP will ensure adequate financing for the planned investment of Rs 23 lakh crore under the National Infrastructure Pipeline (NIP) for the year.

By Sarkaritel August 29, 2020 18:16