Focusing on Quality to Help “Build Human Fiscal Policy”: RBI Study
The formal weaving of quality goals into fiscal consolidation pathways will result in “establishing a fiscal policy with a human face” and the “silent revolution will be complete” if the focus is on quality rather than quantity, according to the report. a study by the Reserve Bank of India (RBI). said.
“In India, institutionalizing quality considerations in budget management and discipline is key,” according to the RBI’s study on the budget framework and the quality of spending in India.
“If the focus on quality rather than quantity in the conduct of fiscal policy can be institutionalized into a way of life, the silent revolution will be complete,” the RBI study said. He proposed quantifiable measures of the quality of public spending, which also encompass modernizing social infrastructure by investing in health, education and skills.
“In addition to meeting the standards of” simplicity “and” easily communicable “spending rules of good practice, the formal weaving of quality objectives in budgetary consolidation trajectories will lead to a budgetary policy with a human face”, a- he declared. It could even counterbalance the pro-cyclical bias in fiscal policy by ensuring a constant level of delivery of quality public goods, the RBI said.
The RBI study also proposed to formally integrate an RD-GFD (revenue deficit in the gross public deficit) and a capital expenditure ceiling (RECO). “Regarding the composition of spending, a RECO ratio of no more than 5 and an RD-GFD ratio of no more than 40 percent for general government (central states plus) is empirically appropriate for a sustainable growth path. “said the central bank.
Even as Covid-19 engulfs the world in its deadly grip, leaving a trail of death and destruction in its wake, renewed interest has been generated in the role of fiscal policy in times of pandemic and in the life of the world. beyond, ”the RBI study said. .
Increasingly, the narrative is shifting from the narrow confines of stimulus and subsequent consolidation to sustainable, growth-friendly fiscal policy, according to the study.
“By strategically reorienting and re-prioritizing both revenue and expenditure, tax authorities have shown that they can get value from the public sector, leading the private sector to unlock growth opportunities, the public sector coexisting with the private sector in the partnership entrepreneurship and the public sector withdrawing to allow private enterprise to take the initiative in the areas of sunrise, blending in an overall quality improvement budgetary spending and, ultimately, the quality of growth, ”he said.
He said the Union budget 2021-2022 takes a step in that direction by attempting to reshape the composition of spending in favor of infrastructure, which is appropriate from the point of view of the 1,000 investment requirement. billion dollars from India in the quest for a world class. Physical infrastructure.
“There is greater recognition than ever that in the race for fiscal rectitude that inevitably follows a period of recovery, the growth drivers of public spending must be preserved and nurtured,” he said. While Covid-19 has tested the limits of flexibility in fiscal policy frameworks in India as well as the rest of the world, it has offered a unique opportunity to redefine fiscal policy in a way that emphasizes’ how On “how much,” the RBI study said.