CII Commends Central Government's Fiscal Strategy Ahead of Union Budget 2025-26
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New Delhi, Dec 8 (NationPress) India is witnessing substantial growth even as the global economy slows, thanks to the Government's effective fiscal management aimed at ensuring macroeconomic stability, remarked CII director Chandrajit Banerjee on Sunday.
Discussing the CII's recommendations for the upcoming Union Budget, Banerjee noted, "The fiscal management has successfully balanced the fiscal deficit and fiscal support for growth. This balance has fostered macroeconomic stability and enhanced resilience in an era marked by considerable global economic uncertainty."
As the next budget approaches, the CII recommends adhering to the fiscal deficit target of 4.9% of GDP for FY25 and a goal of 4.5% for FY26. However, CII cautions that overly ambitious targets beyond these figures could negatively impact growth.
The CII has also praised the Union Budget 2024-25 for maintaining the fiscal deficit at levels conducive to reducing the debt-to-GDP ratio.
In light of this, the upcoming budget could establish a trajectory to lower the Central Government's debt to below 50% of GDP in the medium term (by 2030-31) and below 40% in the long term, as suggested by the CII. Such a clear target could positively influence India's sovereign credit rating and subsequently affect interest rates across the economy.
To facilitate long-term fiscal planning, the Government should contemplate implementing Fiscal Stability Reporting. This could involve the publication of annual reports detailing fiscal risks under various stress scenarios and the prospects for fiscal stability. This initiative would assist in forecasting potential economic challenges or opportunities and evaluating their impact on the fiscal trajectory.
The reporting might also encompass long-term (10-25 years) projections of fiscal positions, taking into account factors such as economic growth, technological advancements, climate change, and demographic shifts. Several nations have adopted similar proactive measures, with forecasting periods ranging from 10 years in Brazil to 50 years in the UK.
"Alongside fiscal prudence at the Centre, maintaining fiscal discipline at the State level is equally vital for overall macroeconomic stability and fiscal sustainability. Currently, the combined expenditure of State governments surpasses that of the Union Government," Banerjee expressed.
The CII has proposed three measures to encourage states towards fiscal responsibility.
First, States could be motivated to implement state-level Fiscal Stability Reporting.
Second, States have been permitted to borrow directly from the market, following the 12th Finance Commission's recommendations. States also provide guarantees for borrowing by State PSEs, which can impact the state's fiscal health.
Third, the Union Government might establish an independent and transparent credit rating system for the states to encourage them to uphold fiscal discipline. The ratings could influence the states' autonomy in borrowing and expenditure decisions.
Moreover, the Central Government could utilize the credit ratings of states as a factor in determining transfers to states, including for initiatives such as 'Special Assistance as Loan to States for Capital Expenditure', according to the CII statement.
"Such incentives will serve as a compelling motivator for State Governments to prioritize fiscal prudence and the fiscal sustainability of state finances," Banerjee concluded.
