Former chief economic adviser Arvind Subramanian on Wednesday said the FRBM Act will probably have to be revised by the end of the year as India will witness a sharp decline in GDP growth due to the COVID-19 crisis.
Addressing a webinar organised by EY India, Subramanian further said while labour reforms were necessary, the way they have been done by some states have undermined basic protections to workers, especially in light of the migrant crisis.
"It is going to be a very, very difficult economic year. We should brace ourselves for a sharp decline in GDP growth. India's fiscal situation is going to be very very difficult. India's debt to GDP will rise to 85 per cent once dust settles," he said.
Subramanian, currently a visiting professor at Harvard University, further said reviving the financial sector is going to be critical for stimulating economic growth.
Talking about India's current macroeconomic situation amid the COVID-19 pandemic, he said the Fiscal Responsibility and Budget Management (FRBM) Act and terms of reference of the 15th Finance Commission will probably have to be revised and updated.
"Compare to the Budget 2020-21, I think facts have changed. We will probably have to revise, and update Budget numbers, the FRBM framework and the terms of reference of the 15th Finance Commission at the end of the year," Subramanian emphasised.
The FRBM Act of 2003 seeks to reduce the country's fiscal deficit through financial discipline.
He also pointed out that due to the Rs 20 lakh crore economic package announced by the government to mitigate the impact of the COVID-19 pandemic, India's debt-to-GDP will rise to 85 per cent.
The eminent economist also noted that the pandemic in India is not under control.
"Developing countries are much more vulnerable and have less fiscal space than advanced economies. Lockdown has been much more severe on developing countries," he said.
Noting that India entered into lockdown when its economy was already slowing, Subramanian said, "It will take a lot of hard work for India to again start growing at 6 per cent."
The former CEA also said the pandemic and the lockdown have made the case for Universal Basic Income (UBI) stronger.