Fifteenth Finance Commission chairman N.K. Singh on Thursday said returning to a sustainable debt trajectory will be challenging in the medium term with both the Centre and states substantially increasing their borrowing limits.

“We must look at a much higher growth trajectory in the medium term for debt to be manageable,” he said while briefing reporters after meeting the committees on the fiscal consolidation roadmap and health sector.

“The government has not allowed the opportunity to go waste by undertaking far-reaching reform initiatives in agriculture, power and the one-nation one-card. The question is what lag the reforms will reflect on the medium term for any meaningful impact on the fiscal path,” he added.

The commission in a statement said the committee noted that both Union and state governments will have to make substantive expenditures to tackle the unprecedented situation caused by the covid-19 pandemic.

“This, coupled with the downward pressure on economic activity caused by the pandemic, will impact the debt-to-GDP ratio of the government. Considering the uncertainty about emerging outlook, the magnitude of such impact is too early to be assessed now, and will need to be carefully monitored over the coming months,” it said.

The commission is in the process of redrawing its earlier recommendation of debt-to-GDP ratio of 40% of gross domestic product for the Centre and 20% of GDP for states by FY25, as they were no longer feasible with the Centre already raising its borrowing by 4.2 trillion for FY21, and allowing states to borrow up to 5% of state GDP, subject to certain conditions.

“It does not require an amendment as there is a provision for national emergency in the original Fiscal Responsibility and Budget Management Act of 2003 that has not been superseded by the subsequent Act,” Singh said.

The commission will wait for the GDP figures of the March quarter of FY20 and June quarter of FY21 to make any meaningful assessment for its medium-term growth and debt-to-GDP projections, he added.

Singh said additional borrowing by states cannot be an automatic right, and praised the Centre for maintaining consistency with the basic architecture of fiscal federalism.

About deficit financing by the central bank to meet the growing demand for resources, Singh said the government need not foreclose any option.

Health experts held that it is difficult to second-guess the path of the coronavirus pandemic and the general feeling was that we have to learn to live with it for somewhat longer period till a vaccine is found, Singh said. The experts said the immediate focus need to be on high-density clusters, addressing the growing pressure on rural India from reverse migration of workers, stepping up tests, and using technology to meet the resource gap in rural India.

In the medium term, the experts advised significant increase in resource allocation for the health sector from the current 0.9% of GDP.

“Experts also advised to explore the feasibility of a national health service in the long run. Medical education in concurrent list gives the option to have a national health service in India,” Singh said.

To find the resource gap in the health sector amid the covid-19 pandemic, the commission has asked a high-level group under AIIMS director Dr Randeep Guleria to make fresh recommendations so that the commission could include them in its next report.

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