Industry must back rational fiscal policy: Rajiv Kumar

NEW DELHI: Niti Aayog vice-chairman Rajiv Kumar has urged the industry to voice more support for a rational fiscal policy and not always seek fiscal consolidation.

“I don’t see industry voice in support of rational fiscal policy, “Kumar said addressing a session on “The Fiscal Conundrum” at the annual session of the Confederation of Indian Industry (CII).

Kumar has for a while favoured higher government spending to give a boost to the economy and has called for a greater focus on revenue deficit.


He said the fiscal policy needs to be counter cyclical to allow room for stimulus when the economy is not doing well. The Fiscal Responsibility and Budget Management Act (FRBM) has discouraged short-term populist measures and promoted fiscal discipline, he said, but borrowing that finances long-term capital expenditure should not cause concern.

“If you keep revenue deficit to zero or to just above that, then you are not borrowing to consume,” he elaborated. “You must borrow to invest in productivity enhancing projects and investments, so that the rate of return on investments is more than the rate of inflation. That is the golden rule to follow.”

In the budget presented on February 1, finance minister Arun Jaitley stretched the fiscal consolidation roadmap to a 3% fiscal deficit. Fiscal deficit for FY18 is budgeted at 3.5% of GDP while that for current fiscal at 3.3% and then declining to 3.1% in FY20 and 3% in FY21.

The revenue deficit, too, is projected to decline over this period to 1.6% in FY21 from 2.2% budgeted this fiscal.

While calling for a greater focus on revenue deficit, Kumar said there is a need to redefine revenue expenditure.

“The FRBM committee said that the revenue deficit cannot be used because spending on education and health are included in it. Well, let us redefine revenue expenditure. Let us put spending on health and education in capital expenditure,” he said, adding these are productivity enhancing and take care of future growth.

Kumar also called for improved expenditure efficiency of public sector expenditure.

“We at NITI Aayog are doing our bit to put together what is called performance-and outcome-based measure for all budget line items because we want all ministries and agencies to be able to tell us how they spent the money allocated,” he said, adding that otherwise debt will continue to rise without a commensurate rise in productivity or in assets.

On the issue of criteria that could be used for fiscal disbursement, Kumar noted that it has to include some performance-based measures as well.

Therefore, those states which have done better in certain performances are not punished.

“We at Niti Aayog thought what could be the other criteria that could be used for fiscal disbursement and we try to link it with health, education and malnutrition,” he said, adding that even if you use social development goal performance, the more backward states or populous states will lose some of their allocation, therefore that will become far more politically sensitive than you can have.