Economic Survey suggests govt to follow fiscal prudence to keep interest rates low

Amid expectations of tax relief for middle class in the Budget, Economic Survey on Tuesday suggested that the government should follow the path of fiscal prudence as it will benefit all sections of society by keeping interest rates low.

The Survey, authored by a team led by Chief Economic Advisor V Anantha Nageswaran, argued that fiscal discipline will ensure significant fiscal space for policy action in uncertain times. "As India's economic recovery advances, amidst the continuing global uncertainties and risks, the fiscal glide path illuminates the path for fiscal policy. That will ensure more significant fiscal space for policy action in uncertain times.

"Further, in reality, fiscal discipline translates into a fiscal stimulus for all sections of the economy through lower interest rates," the Economic Survey 2022-23 said.

The suggestion comes on the backdrop of increasing expectations of the middle class that the Budget, to be unveiled on February 1, will have some tax sops to tide over the impact of inflation.

The Survey further said that fiscal prudence will ensure lower interest rates for educational loans, housing loans, car loans and business loans, thereby putting more money in the hands of people. A higher fiscal deficit translates to larger government borrowings, which in turn push interest rates.

In the past couple of years, the government has been pushing capital expenditure to drive economic growth.

The fiscal deficit, the amount the government borrows from the market to meet its expenses, has been pegged at Rs 16.61 lakh crore or 6.4 per cent of GDP in the current fiscal. This is lower than 6.71 per cent in the last fiscal.

The government has set a consolidation target under which it aims to reach a fiscal deficit level below 4.5 per cent by 2025-26.

"The capex-led growth strategy will ensure sustainable debt levels in the medium-term," the Survey said.

The Survey said a high fiscal-deficit-to-GDP ratio witnessed in the aftermath of the pandemic is a concern for countries worldwide and the solution to the increased fiscal deficit and debt-to-GDP ratios lies in persistently high growth for a few years.

It said that there is no need for 'undue alarm' on the fiscal front with India's nominal GDP growth expected to get back to its trend path and fiscal parameters showing improvement.

The survey said fiscal consolidation will be achieved in the medium-term on the back of sustained and moderate economic growth rate.

The Economic Survey 2022-23 has projected nominal GDP growth at 11 per cent in the next fiscal and real GDP growth of 6-6.8 per cent.

India will become a USD 3.5 trillion economy by March 2023, with GDP growth rate of 7 per cent in current fiscal.