Finance Commission committee reports high levels of uncertainty

Participants have wide variations of opinion in nominal GDP growth projections, ranging between -6% and 1%

India’s nominal GDP growth rate in 2020-21 could range between -6% and 1%, according to members of the 15th Finance Commission’s committee on the fiscal consolidation roadmap, which met via video conferencing on Thursday.

“There are high levels of uncertainty, both with regard to the course of the pandemic and the fiscal pressures on the economy and the trend of economic recovery,” the Commission’s Chairman N.K. Singh told journalists after the meeting. He said participants in the meeting had wide variations of opinion in terms of nominal GDP growth projections, ranging between -6% and 1%, as well as on whether the economy would experience a V-shaped or U-shaped recovery.

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Nominal GDP growth does not take inflation into account, and is thus higher than real GDP growth. For reference, the Centre projected a 10% nominal GDP growth rate for this year in the February Budget. For 2019-20, the nominal growth was estimated at 7.5%.

In medium term

“In the medium term, we would like to be in the range of 8% growth, or the debt trajectory becomes very problematic,” said Dr. Singh, who felt that the Centre’s reforms as part of the Aatmanirbhar stimulus package were meant to spur such growth in the medium term, even if they did not help with the immediate situation. “The question is what is the lag with which these reforms are going to reflect in the growth rate in the medium term.”

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He also endorsed the Centre’s reform conditions to allow States to exceed their current borrowing limits, although several State governments have objected to this. Representatives from Punjab and Tamil Nadu were added to the Committee for Thursday’s meeting.

The Finance Commission’s high level group on health, headed by All India Institute of Medical Sciences Director Randeep Guleria, also met on Thursday, in order to review its earlier recommendations in view of the coronavirus (COVID-19) pandemic. It has now recommended an immediate beefing up of health infrastructure in areas with a cluster of positive patients, and also discussed how to address the growing needs of rural health infrastructure and manpower, especially with migrants returning from the cities often carrying the virus to their villages.

‘Wide disparity’

“There is a wide disparity between the per capita health personnel available in various States. The situation in rural Bihar and Jharkhand is dramatically different from the cities. We considered how technology can be used to bridge that gap,” said Dr. Singh.

The anaesthetists who are needed to operate ventilators are crucially missing in many rural areas, he noted, even while manufacture of the machines has been stepped up. There was also a suggestion to allow final year MBBS students to begin practising in some areas, as well as some discussion about the need for a national health service.

In the medium term, the government’s financial outlay on the health sector must increase significantly from the current 0.9% of GDP, said Dr. Singh. Suggestions were also made with regard to improving the reach of the Ayushman Bharat scheme, especially among out-patient cases.

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