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Principal of Fiscal Conservatism is followed:
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Allocations to MGNREGA drastically reduced.
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Allocations for food subsidies reduced by almost half.
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Why Fiscal Conservatism is followed?
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Falling revenues had forced the government to restrict its aggregate spending.
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A sharp reduction in corporate tax rates in September 2019,
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The under-performance of Goods and Services Tax regime.
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Failure of government’s ambitious disinvestment agenda. The government was only able to collect ₹32,000 crores last year, compared to the plan of ₹2.1-lakh crore.
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FRBM mandate to reduce fiscal deficit.
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Government has proposed increasing public investment by 34.5% in the upcoming fiscal year by:
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Borrowing
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Higher Fiscal Deficit allowed for states.
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Development Finance Institution: to finance long term credit need for infrastructure.
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Disinvestments of equity, strategic sale, and privatization of the public financial sector.
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Issues:
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DFI mentioned in the budget will be financed by foreign portfolio investments (FPI), which is a cause for concern. FPI represents short term inflows with exchange rate risks. This investment will certainly lead to currency and maturity miss-match, increasing the cost of capital.
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he NFHS data for 2019-20 indicated that constructing toilets in households is of no use unless adequate access to water and sewage facilities are provided. Thus, the effectiveness of such investments depends upon coordination with other facilities.
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No targeted employment scheme.
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Disinvestment targets could not be achieved in past.
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Bad Bank will be created to reduce NPAs throughout the Industry.