Citing persistent global headwinds, a member of RBI's monetary policy committee has advised the government against going for fiscal consolidation ahead of the budget in February. Ashima Goyal is expecting a reduction in subsidies as well with food and energy prices falling.
She also recommended going ahead with small steps announced beforehand to reduce growth sacrifice, in the process of controlling demand and the current account deficit.
The gap between India's expenditure and revenue is expected to come down to 6.4 per cent in FY23, while the government has set a target to consolidate the fiscal deficit below 4.5 per cent by FY26.
Goyal also recommended a counter-cyclical expenditure to avoid an earlier mistake from the 2000s which scaled up expenses with tax income.
According to her, stronger incentives can implement strategies in states sustainably.
She is also in favour of a fair and compliance-friendly low tax regime for agriculture, which requires reduction of exemptions and better data collection to prevent evasion.
To address the issue of high interest on debt consuming a major chunk of the revenue, Goyal advised that governments should limit borrowing to productive expenditure.
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