The Central government has reiterated its commitment to fiscal discipline despite mounting global economic challenges and rising expenditure pressures. During a presentation to the Parliamentary Standing Committee on Finance, officials of the Department of Economic Affairs (DEA) spoke about the necessity of balancing development expenditure with prudent fiscal management amid increased burden of subsidies and obligations on government finances.
The presentation states that the rise of market borrowings by the state governments is a major issue of concern. Gross state borrowings rose to around Rs. 7 lakh crore in FY2021-22. The expenditure stood at 12.8 lakh crore last year, which is around 83% higher.
Government data also shows states are funding almost 76% of their fiscal deficit through market borrowings, thereby increasing their reliance on debt markets. Also, the divergence between Central and state government securities has increased, adding further pressure to state finances.
The Finance Ministry warned that an increase in borrowing by both Centre and states, combined with a lower domestic savings rate, could exert upward pressure on interest rates across the economy, according to those involved in the talks.
The DEA presentation highlighted that a substantial share of government expenditure, such as salaries, subsidies and interest payments, continues to consume a significant portion of government resources, limiting the scope for productive investments.
The government also acknowledged that the increasing expenditure on fertiliser and fuel subsidies, due to the ongoing situation in West Asia, will further push up revenue expenditures. Continuous investment in infrastructure and other asset-building projects is still needed to support long-term economic growth, officials said, noting that if capital expenditures were to stall, that would harm future economic growth.
The Centre's commitment to fiscal consolidation would not be affected by the uncertainties in the broader economy, officials said.
The government's goal is to keep debt on a steady downtrending path and continue to foster economic growth, the presentation said. The officials also pointed out that India is one of the few countries that is able to consolidate debt after the Covid-19 pandemic, like Australia, Canada, and Germany.
The conversation highlights the government's focus on maintaining fiscal stability while also ensuring that growth investments are not derailed by increased borrowing rates and economic uncertainty in the world.