Finance secretary Ajay Seth on Friday floated the idea of rating state government securities based on their fiscal behaviour, as he pitched for a market-driven, independent mechanism to bring about discipline among states.
In the absence of such a mechanism, Seth stressed, the borrowing costs of those that are fiscally prudent are not much different from those that are not. A rating mechanism could, therefore, influence the yield of state government papers, incentivise good fiscal behaviour and discourage financial profligacy, he indicated.
Seth, who was speaking at a conference of the Isaac Centre for Public Policy in the national capital, said that the Centre had initiated steps to curb unbridled off-budget borrowings by states, which was one way of enforcing some fiscal discipline. This move, however, has been legally challenged by some states.
On the sidelines of the event, he said the World Bank has agreed to tweak the methodology of its governance indicator, heeding the voice of India and some others that push for an improvement in it.
Global rating agencies, which assign about 15% weight to governance in their sovereign rating assessments, rely on the World Bank's Worldwide Governance Indicators (WGI). Senior Indian officials have flagged the excessively subjective nature of the WGI and pitched for a more objective assessment.
'Private sector-led growth'
Seth said the country's macro-economic goals should be balanced in such a manner that it encourages more private sector-led growth, with the government playing the role of the facilitator.
He said economic growth, as per various projections, would remain in the range of 6.2-6.8% in the current fiscal. In case of adverse global conditions, the growth rate could be at the lower end of the range, but if external headwinds don't exacerbate further, the rate of expansion could hit the upper band, he indicated.
The finance secretary reaffirmed commitment to the fiscal consolidation course to reduce the country's elevated debt-to-GDP ratio. He said global rating agencies look at India more cautiously, assuming its elevated debt levels can constrain its ability to tide over another big crisis such as the pandemic. This is because its interest outgo, as a percentage of its tax revenue, still remains fairly large.
Seth pushed for raising the country's tax-to-GDP ratio to about 20% in the next 5-6 years from the current 18%. The tax ratio was static at about 16.5% for a long time, he said.
The government, he said, has been rebalancing its expenditure profile in favour of capital expenditure in recent years. This has to continue, he said, adding the budget announcement of investing in people, investing in the economy and investing in innovation.
Seth, who along with finance minister Nirmala Sitharaman was in the US last week to attend the Spring meetings of the International Monetary Fund and the World Bank, said "there was a clear sense there that a rebalancing is needed". There were also deliberations there that multilateral institutions, including the World Bank, have to become more focussed. There were also discussions around achieving energy transition, with some countries focussing on realising this goal without jeopardising growth.
In the absence of such a mechanism, Seth stressed, the borrowing costs of those that are fiscally prudent are not much different from those that are not. A rating mechanism could, therefore, influence the yield of state government papers, incentivise good fiscal behaviour and discourage financial profligacy, he indicated.
Seth, who was speaking at a conference of the Isaac Centre for Public Policy in the national capital, said that the Centre had initiated steps to curb unbridled off-budget borrowings by states, which was one way of enforcing some fiscal discipline. This move, however, has been legally challenged by some states.
On the sidelines of the event, he said the World Bank has agreed to tweak the methodology of its governance indicator, heeding the voice of India and some others that push for an improvement in it.
Global rating agencies, which assign about 15% weight to governance in their sovereign rating assessments, rely on the World Bank's Worldwide Governance Indicators (WGI). Senior Indian officials have flagged the excessively subjective nature of the WGI and pitched for a more objective assessment.
'Private sector-led growth'
Seth said the country's macro-economic goals should be balanced in such a manner that it encourages more private sector-led growth, with the government playing the role of the facilitator.
He said economic growth, as per various projections, would remain in the range of 6.2-6.8% in the current fiscal. In case of adverse global conditions, the growth rate could be at the lower end of the range, but if external headwinds don't exacerbate further, the rate of expansion could hit the upper band, he indicated.
The finance secretary reaffirmed commitment to the fiscal consolidation course to reduce the country's elevated debt-to-GDP ratio. He said global rating agencies look at India more cautiously, assuming its elevated debt levels can constrain its ability to tide over another big crisis such as the pandemic. This is because its interest outgo, as a percentage of its tax revenue, still remains fairly large.
Seth pushed for raising the country's tax-to-GDP ratio to about 20% in the next 5-6 years from the current 18%. The tax ratio was static at about 16.5% for a long time, he said.
The government, he said, has been rebalancing its expenditure profile in favour of capital expenditure in recent years. This has to continue, he said, adding the budget announcement of investing in people, investing in the economy and investing in innovation.
Seth, who along with finance minister Nirmala Sitharaman was in the US last week to attend the Spring meetings of the International Monetary Fund and the World Bank, said "there was a clear sense there that a rebalancing is needed". There were also deliberations there that multilateral institutions, including the World Bank, have to become more focussed. There were also discussions around achieving energy transition, with some countries focussing on realising this goal without jeopardising growth.
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