Quality focus would set a humane fiscal policy: RBI report

Mumbai: A Reserve Bank of India study inferred that the formal weaving of quality targets into the fiscal consolidation paths would result in setting a fiscal policy with a "human face", The Indan Express reports. The study on fiscal framework and quality expenditure, further state that the "silent revolution will be complete" if the emphasis is on quality over quantity.

According to the study, institutionalising quality considerations is what important in India. The study proposed quantifiable metrics for the quality of public expenditure, which also includes upgrading the social infrastructure by investing in health, education and skilling.

The RBI opined that besides satisfying the 'simplicity' and 'easily communicable' norms of best practice expenditure rules, the formal weaving of quality targets might counterbalance the pro-cyclicality bias of fiscal policy by assuring a steady level of provision of public goods of quality.

The study proposed formally incorporating an RD-GFD (revenue deficit in the gross fiscal deficit) and a revenue expenditure to capital outlay (RECO) ceiling. For a sustainable growth trajectory, the RECO ratio of not more than five and RD-GFD ratio of not more than 40 per cent for the general government- both union and state- is found to be appropriate, RBI said.

Even during this pandemic rage, a renewed interest has been generated in the role of fiscal policy now and post-pandemic life, according to the study. It asserted that the narrative trend is shifting out of narrow confines of stimulus and consolidation to an enduring growth-friendly fiscal policy.

Through strategic repurposing and reprioritising revenues and expenditures, fiscal authorities have shown that they can extract value for their money. For that public sector should lead the private sector to unlock growth opportunities. The public sector should co-exist with the private sector in the entrepreneurial partnership. The public sector should step back to allow private enterprise to take the lead in sunrise areas, coalescing into an across-the-board improvement in the quality of fiscal spending and eventually in the quality of growth, the study found.

It claims that Union Budget 2021-22 moves towards this direction by attempting to reshape the composition of spending favouring infrastructure. The budget's spending of 1 trillion is appropriate as India require world-class physical infrastructure, the study adds. It suggests that the growth-giving elements of public spending have to be preserved and cultivated while saying that Covid-19 has given India a unique opportunity to redefine fiscal policy in a manner that emphasises 'how' over 'how much'.