## Fiscal Policy and Reforms for Post-Recovery Sustainable Growth — Sitikantha Pattanaik

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**Canonical URL:** [Fiscal Policy and Reforms for Post-Recovery Sustainable Growth — Sitikantha Pattanaik](https://www.imf.org/-/media/files/oap/oap-home/2023/session-11discussantsitiindia.pdf)

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### Role of Public Expenditure in Driving a Policy-induced Recovery
- Public sector share in consumption demand (Per cent of GDP) shows government consumption around: 11.1, 10.6, 10.0, 10.0, 10.0, 9.8, 10.2, 10.3, 10.2, 11.3, 10.7, 10.3 (years 2011-12 through 2022-23).
- Private consumption (Per cent of GDP) series includes: 56.2, 56.2, 56.7, 56.2, 56.1, 56.1, 55.8, 56.1, 56.9, 57.3, 56.9, 57.2 (years 2011-12 through 2022-23).
- Public sector share in gross capital formation (Per cent of GDP) components include:
  - Public sector and private corporate sector and household sector and others with gross capital formation totals across years (2011-12 through 2022-23) showing totals such as 39.0, 38.7, 33.8, 33.5, 32.1, 32.0, 33.9, 33.8, 30.7, 27.3, 31.2, 31.7 (Per cent of GDP).
- Emphasis: a public sector capex-led recovery to catalyze investment while rebuilding fiscal space via gradual consolidation.

### Fiscal Policy During and After Recovery — Multipliers and Asymmetries
- Overall fiscal multipliers (Impact multiplier): 0.72, 0.79, 0.84, 1.32 (listed under "Impact Multiplier" heading).
- Duration and types of multipliers (Impact (Current), Cumulative (Over 4 quarters), Peak) — RBI staff estimates:
  - Growth Slowdown:
    - Total Expenditure: Impact 0.78; Cumulative 3.98; Peak 1.89.
    - Capital Expenditure: Impact 0.43; Cumulative 6.66; Peak 3.41.
    - Revenue Expenditure: Impact 0.43; Cumulative 3.77; Peak 2.64.
  - Expansion:
    - Total Expenditure: Impact -0.21; Cumulative -0.22; Peak 0.15.
    - Capital Expenditure: Impact -0.13; Cumulative -0.44; Peak 0.55.
    - Revenue Expenditure: Impact -0.28; Cumulative -0.74; Peak -0.07.
- Asymmetric fiscal multipliers: fiscal expansion and monetary shocks have different impulse responses depending on cyclical state (expansion vs growth slowdown). Example impulse responses illustrated for:
  - IRF of 1 percentage point rise in interest rate during Expansion (quarters 1–12; percentage-point responses shown).
  - IRF of 1 percentage point fall in interest rate during Growth Slowdown.
  - IRF of 1 percentage point rise in GFD during Expansion.
  - IRF of 1 percentage point rise in GFD during Growth Slowdown.

### Fiscal Expansion Amid Weak Private Sector Credit Demand
- General Government Fiscal Deficit (As per cent of GDP) time series highlighted with values up to 13.1 and 10.4 and 9.4 (years including 1991-92 through 2021-22).
- Note: Data for 2021-22 is Revised Estimates. For 2022-23 used Revised Estimates for Centre and Budget Estimates for States.
- Credit-to-GDP gap (actual-trend) from BIS shown with historical percent deviations (1990–2022) illustrating periods of negative and positive gaps.

### Increase in Public Debt amid Stable Debt of the Rest of the Economy
- Private debt (As percentage of GDP) and non-financial private sector and household series presented across 2007–2022 showing relative stability in private-sector debt while public liabilities rise.
- General Government Outstanding Liabilities (Per cent of GDP) illustrated with series values including specific data points 84.7, 72.7, 89.6, 84.5, 82.1 (years shown).
- Interest payment metrics:
  - Interest Payment as Percentage of GDP and Total Expenditure series spanning 1991-92 through 2022-23 (charts indicate long-run trends; fiscal rules and Covid-19 pandemic noted as timeline markers).

### Debt Sustainability Indicators
- r-g (real interest rate minus growth) series presented across 1992-93 through 2022-23 with both positive and negative values (chart axis includes -15.0, -10.0, -5.0, 0, 5.0, 10.0).
- Conclusion highlighted: "Debt Sustainability not Threatened" based on debt dynamics and composition.

### Green Transition for Sustainable Growth
- Rising share of renewables in installed generating capacity (Per cent shares by sources):
  - Renewable energy sources share series includes values 3, 5, 6, 8, 9, 10, 11, 12, 12, 12, 12, 13, 18, 20, 22, 23, 25, 28 (years shown cumulatively).
- Installed generating capacity year-on-year % change (Per cent Y-o-Y) includes series values: 3.63, 2.10, 1.51, 2.00, 1.70, 0.59 and sector breakdown shares such as 47.50, 20.54, 12.49, 11.74, 8.85, 16.4 (years 2016-17 through 2021-22).
- Source: Central Electricity Authority, Ministry of Power.

### Key Takeaways — Policy Guidance and Strategic Priorities
- Three Cs (COVID, Conflict and Climate change) necessitate fiscal responses encompassing three Es:
  - Expenditure: protect the vulnerable while powering growth recovery.
  - Expectations: communicate with targeted actions to quell adverse expectations and boost confidence.
  - Efficiency: sustain reforms to secure and strengthen medium-term growth.
- Pragmatism trumps idealism in fiscal strategy.
- Sustainable growth requires fiscal actions to:
  - tame supply-shock induced inflation,
  - undertake timely fiscal consolidation to contain external sector vulnerabilities,
  - pursue social development goals (SDGs) and climate change action plans.
- Global shifts in trade, technology, capital flows, commodity prices, supply chains, and provision of global public goods will pose new anticipated and unanticipated challenges for fiscal policy in securing post-recovery sustainable growth.
- Recommended approach: public sector capex-led recovery in the investment cycle while rebuilding fiscal space gradually through consolidation of deficit and debt to entrench macro stability — characterized as prudent, progressive, and pragmatic fiscal policy.

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_Source: https://www.imf.org/-/media/files/oap/oap-home/2023/session-11discussantsitiindia.pdf_