NEW! The Gist (AUG-24) | E-BOOKS
THE GIST of Editorial for UPSC Exams : 29 JUNE 2019 (Bringing fiscal policy back into the spotlight (The Hindu))
Bringing fiscal policy back into the spotlight (The Hindu)
Mains Paper 3: Economy
Prelims level : Fiscal Policy
Mains level : Keynesian style pump priming
Context
- Unemployment is at an all-time high. Growth is falling. Our GDP grew from $1.32 trillion in 2009 to $2.74 trillion in 2019 in nominal terms, a compounded average growth of 7.5 per cent, it has now fallen to 5.8 per cent in Q4 of FY19 .
- If we aim at becoming a $5-trillion economy in five years, our GDP will have to grow at 12.5 per cent. We have had our successes.
- ‘One Nation One Tax’ was successfully implemented. Fiscal deficit has been contained from 3.9 per cent in 2016 to 3.4 per cent. The Insolvency and Bankruptcy Code has been brought on the statute.
The inflation trend
- Monetary policy has been unconventional across the globe and the distinction between monetary and fiscal policy has become blurred.
- Esoteric and unconventional monetary policy tools, in the words of Nouriel Roubini, are now the norm.
- Terms like ZIRP (Zero Interest Rate Policy), QE (Quantitative Easing), CE (credit easing) or UFXINT (Unsterilised Effects Intervention) are now used in most advanced economies and some emerging markets as well.
- Inflation has now eased to a 22-month low.
Pump priming
- The present economic situation calls for bold measures and an emphatic shift from monetary policy to fiscal policy.
- It does not matter if fiscal deficit target is not adhered to for a year or two. Growth has to be fostered. There should be a temporary injection of purchasing power into the economy.
- A temporary rise in government spending, financed by borrowing rather than taxes, can raise incomes through its multiplier effects which will allow investment to recover.
- Once the cumulative recovery process gets going, it will be possible to eventually receive sufficient extra revenue to restore government debt to its original level.
- This is the Keyensian theory of pump priming.
Revenue raising measures
- Farmers have to be paid ₹6,000 per year, and Ayushman Bharat requires funds.
- The Bharat Mala project like the Golden Quadrilateral, the Railway expansion, the Ganga Canal Cleaning Project, the linking of Godavari and Pennar should be taken up in right earnest to add to employment opportunities on a large scale.
- Additional resources must be mopped up. The new Finance Minister has started off in right earnest.
- There has been a sudden crackdown on tax evasion and money laundering indulged in by tax evaders not matching their income tax and GST returns. Notices have been issued for unearthing the mismatch.
- Inefficient and corrupt tax officials have been given the marching orders.
- Prosecution provisions have been tightened up ruling out compounding in cases of serious tax frauds.
- The present Finance Minister has been able to persuade the G20 countries to accept suggestions for tackling the problem of MNCs indulging in base erosion and profit shifting.
- Much more remains to be done. GST reforms must include reducing the slabs and pruning the rates.
- Dividend taxation calls for a fresh look. Is it fair to treat a commoner earning dividend of ₹1,000 on par with a billionaire earning in crores?
- Every time taxation of the affluent is talked of, the government comes with an increase in surcharge. A bold measure must be taken to introduce a 40 per cent slab for crorepatis.
- The promises made in the Interim Budget should be fulfilled.
- The SIT constituted on the directions of the Supreme Court suggested that a tax be levied on betting.
- It quoted FICCI and KPMG report to show that a sum of ₹3 lakh crore can be brought to tax, and at the rate of 20 per cent the Exchequer can earn revenue between ₹12,000-₹19,000 crore.
Conclusion
- Our Prime Minister swears by the maxim Sabka Saath, Sabka Vikas.
- The Budget is being presented in the 150th birth anniversary year of the Mahatma.
- Nirmala Sitharaman can be expected to launch surgical strikes on poverty
both rural, and urban.
Online Coaching for UPSC PRE Exam
General Studies Pre. Cum Mains Study Materials
Prelims Questions:
Q.1) With reference to the Indian Footwear, Leather & Accessories
Development Programme (IFLADP), consider the following statements:
1. It is a Centrally Sponsored Scheme.
2. Human Resource Development (HRD) and establishment of Institutional
Facilities are the sub-schemes under IFLADP.
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both
D. None