Government Budgets

Improving fiscal situation through budget

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Kisan Credit Cards

Mains level : Paper 3- Enhancing credit flow to small and marginal farmers

The budget could be an opportunity to increase the consumption which has been impacted by the pandemic and still continues to show the declining trends.

Continuing decline in consumption

  • The first advance estimates of GDP for 2020-21 are much better than the earlier market consensus.
  • The demand side, however, continues to be in a decline with private consumption falling by 9.5 per cent and its share in the overall GDP reducing by full 100 basis points.
  • Per capita private consumption has contracted by 10.4 per cent, while capital formation has contracted by 14.5 per cent, with imports and exports also contracting.
  • Only government consumption remains in positive territory.

What should be the growth in nominal GDP for 2021-22?

  • In terms of specific numbers, the average growth in nominal GDP for the decade ending in 2013-14 was 15 per cent, but the average GDP deflator at 7.6 per cent far outpaced average real GDP at 6.8 per cent.
  • For the six year period ending in 2019-20, average nominal GDP growth was 10.4 per cent, with real GDP growth of 6.8 per cent far outpacing the GDP deflator at 3.6 per cent.
  • It is thus extremely important that we ensure that the current inflation trajectory is kept under control through policy interventions.

Policy recommendations for the farmers

1) Changing condition for renewal of loan on Kisan Credit Cards

  • Out of the outstanding bank credit of about Rs 12 lakh crore to the agriculture and allied activities sector, Rs 7 lakh crore is for Kisan Credit Cards.
  • The KCC portfolio of banks is under stress over the years due to a variety of factors like crop losses, unremunerated prices, debt waivers and the rigidity of the KCC product.
  • Currently, the renewal of KCC loans with payment of both principal and interest ensures interest subvention.
  • It is proposed that for renewal of KCC loans of small and marginal farmers and for loans of other categories of farmers for amounts up to Rs 3 lakh, the payment of interest must be a sufficient condition for renewal as with other loans.
  • The above measure has the potential to reduce the credit cost for banks considerably on KCCs as NPAs can be prevented more easily and the interest rate on KCC loans can be further reduced.

2) Formalise tenancy and provide credit to tenant farmers

  • There are 11.5 crore farmers who are PM-KISAN beneficiaries — 6.5 crore farmers have KCC.
  • Thus, the remaining 4-5 crore could be land owning cultivators and at least 3-4 crore of such could be tenants/lessees/landless.
  • Currently, such tenant farmers are not formalised into the credit deliveries of scheduled commercial banks.
  • As of now, it requires state interventions for tenancy certificates which is only available in Andhra Pradesh.
  • Formation of a SHG model under the Deen Dayal Antodoya Yojana will formalise tenancy even without formal documentation of tenancy.
  • This will enable formal lending to take place to three crore landless farmers.

3) Increasing investment in health and education

  • For health, it government could introduce medical savings account with a defined scheme to deduct interest from the savings account and pay towards a Mediclaim policy.
  • For the record, the size of the health insurance is Rs 32,000 crore and the savings bank interest is Rs 1.15 lakh crore.
  • The government should also consider exempting all retail and health insurance products from GST.

Three suggestions on the fiscal situation

  • First,Withdraw all tax appeals.
  • Second, accept all domestic arbitration decisions against government departments/agencies.
  • Third, clear all outstanding dues to all parastatal agencies within a stipulated time.
  • This will be a milestone structural administrative change that could be even thought of as a one-time balance sheet entry recognising liabilities and paying them off.
  • As a consequence, we could jump multiple positions on the Ease of Doing Business rankings.

Conclusion

By implementing these steps in the budget the government could use this opportnity to stimulate the economy and aid the economic recovery.

Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments