The Central and State governments should eschew the policy obsession for keeping deficits below 3% of the Gross Domestic Product (GDP) and the textbook rules that adhere to balancing the budget to overcome the impasse triggered by COVID-19, public finance expert and Kerala Infrastructure Investment Fund Board (KIIFB) chief executive K.M. Abraham has said.
Interacting with The Hindu, Mr. Abraham said that public finance concerns had led to conferring an unwritten holiness to the 3% borrowing limit for the Central and State governments.
India is expected to have an average financial savings of 12% to 13% of the GDP, of which about 2% is distributed to public sector institutions and about 6% apportioned equally among Central and State governments. This became an axiom in the Union Finance Ministry and now the Centre is imposing it on the States. But the Centre itself tends to flout the rule at will and revises upwards the fiscal responsibility targets through the Union Budget, he said.
Manufacturing industries, which account for the bulk of the private sector borrowing, will be struggling next financial year to dispose of its finished goods, inventories and work in progress. Hence, they are unlikely to show an appetite for fresh debt soon. To keep the economy rolling, States could be allowed to fill up the gap. State governments should be allowed to borrow up to 5% of their share of the GDP in this as well as the next financial year.
The micro, small and and medium enterprises (MSMEs), which account for 6% of the manufacturing GDP and offers 12 crore jobs, need a strong and easily accessible lifeline. The Centre should support a credit line for working capital through the banking system. It should be with a one-year moratorium and repayable over 10 years at 4% interest, he said.
The suggestion assumes significance in the wake of the thrust laid by the government on promoting and nurturing the MSME sector. Mr. Abraham laid accent on leveraging the National Food Security Act and making optimum use of the public distribution system for supplying essentials covered under the system.
The State governments should open procurement channels for produce from rural farmers and homesteads to address shortage of milk, vegetables, fish and meat, he said.
A concerted effort should be made to search, trace and identify the marginalised and indigent sections who did not figure in any formal accounting system such as Jan Dhan, GSTN or income tax databases and ensure that their nutrition and living needs were met fairly, he said.