The Economic Survey Report has hinted at a more generous fiscal policy by the government in future.
Speaking to the media after the release of the Economic Survey report, the Chief Economic Advisor has called for using a counter-cyclical fiscal policy to enable growth during economic downturns.
The CEA says that the fiscal rule has to be framed in such a way that they support the counter-cyclical response.
A counter-cyclical fiscal expansionary fiscal policy calls for higher government expenditure and or lower taxes.
According to the CEA, active fiscal policy - one that recognises that fiscal multipliers are disproportionately higher during economic crises than during economic booms - can ensure that the full benefit of seminal economic reforms is reaped by limiting potential damage to productive capacity.
Calling for a more generous fiscal policy, the CEA says that a negative 'interest rate-growth rate differential' (IRGD) (the difference between the interest rate and the growth rate in an economy) in India allows the government to follow a fiscal policy, especially during growth slowdowns and economic crises.
According to the Economic Survey report, as IRGD for India is expected to be negative in the foreseeable future, a fiscal policy that provides an impetus to growth will lead to lower, not higher, debt-to-GDP ratios.
"In fact, simulations undertaken till 2030 highlight that given India's growth potential, debt sustainability is unlikely to be a problem even in the worst scenarios. The chapter thus demonstrates the desirability of using counter-cyclical fiscal policy to enable growth during economic downturns," says the report.
The survey, though, reiterates that the call for more active, counter-cyclical fiscal policy is not a call for fiscal irresponsibility. "It is a call to break the intellectual anchoring that has created an asymmetric bias against fiscal policy," the report says.
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