Articles by Pinaki Chakraborty

The fiscal consolidation effort of the union government reinforces the fact that a sustained reduction in debt and deficit at the union level is critical for a fast improvement in the general government fiscal balance. As the economic growth has improved, a medium-term debt path for a targeted reduction of debt ratio would help sustain the gains achieved in 2022–23.

The objective of this paper is to understand the core recommendations of the Fifteenth Finance Commission in the context of COVID-19 pandemic. Given the macroeconomic uncertainties and rising fiscal needs, the commission focused on fiscal stability, equity and enhancement of fiscal space through higher borrowing with a fiscal exit plan for both union and states.

The structural inability to control revenue deficits needs different solutions from the usual argument that the utilisation of government expenditure is inefficient and that the government should spend less. It is time to relook at the way the union government spends.

An analysis of the debt and deficit of states based on the budget estimates of 2016–17 shows that almost half of them have a fiscal deficit target higher than the limit set in the Fiscal Responsibility and Budget Management Act. These states need to focus on the quality of expenditure and elimination of revenue deficit as per the framework proposed by the Fourteenth Finance Commission to enhance state-level capital spending.

After the Fourteenth Finance Commission award, aggregate transfers as a percentage of gross domestic product has increased, while grants as a percentage of GDP has declined. The centre is resorting to cess and surcharges that are not shared with the states. This would mean denial of revenue to states, which goes against the spirit of the Constitution. Further, the states have a reduced untied fi scal space, with the union’s share in Centrally Sponsored Schemes in 2016–17 (BE) being reduced. Finally, in the absence of plan transfers, post 2017–18, the focus should be to develop a framework for non-fi nance commission grants to states which is predictable and certain.