“This is not the time to talk of fiscal consolidation. This is the time in which the world believes, I think, that what needs to be protected is the expenditure over fiscal deficit and this is exactly what the central government has done,” NK Singh said at a press conference on Friday. His statement assumes significance as one of the terms of reference of the commission is to recommend a fiscal consolidation road map for the government over the five-year period from 2020-21to 2025-26. Asked about the demand of states for continued compensation for revenue loss on account of goods and services tax (GST) and the GST Council taking up a proposal to borrow for the purpose, Singh said the borrowing must reflect in overall government debt and it is a modality that cannot be skipped.
“Borrowing by the central government is upon the security of Consolidated Fund of India… Borrowing by the state governments is upon the security of consolidated fund of states. So whether you have any other entity to borrow… any borrowing by the government must reflect in general government debt. Whatever be the modality you cannot skip that,” said Singh. The commission held meetings with the Economic Advisory Council (EAC) in the past two days, during which council members noted that while the government’s tax collections were likely to be severely affected due to the pandemic, the impact would be asymmetric.
Their discussions covered the important issue of setting a base year for the commission’s projections of the five-year period. Usually, the commission uses the first year of its award period, but given the situation, there are issues with selecting FY21 as the base year. “One suggestion is to look at the first six months of the subsequent year, leaving 2020-21 out, but take 2021-22 and make that into a base year,” said Singh. “The other option is to look to the past few years and make some assumptions based on that on what the trend growth is… The average growth rate of the past 25-30 years is around 6.5-7%.”
