THE HINDU Editorial Vocabulary-April 19, 2017- Topic 2

Equity in debt

The advice of the expert committee to review the Fiscal Responsibility and Budget Management (FRBM) Act of 2003 requires attention, given India’s track record. This is all the more so given the born-again political conviction that promises of random largesse to voters is just fine. Excessive and unsustainable borrowing by the government is obviously perverse as it entails a cost on future generations while crowding out private investment. 

In the past, fiscal irresponsibility has cost jobs, spiked inflation, put the currency in a tailspin and even brought the country to the brink of a default. The possibility of default may have resulted in the liberalisation of the economy in 1991, but the key trigger was irrational public spending on borrowed money in the late-1980s. Less than a decade later, with fiscal discipline faltering and the deficit shooting up to 10% of GDP, the FRBM law was enacted to ‘limit the government’s borrowing authority’ under Article 268 of the Constitution. But the target to limit the fiscal deficit to 3% of GDP (by 2009) was abandoned after the 2008 global financial crisis as a liberal stimulus reversed the gains in the fiscal space, creating fresh macro-level instability. The FRBM Act’s deficit target is now only likely to be met next year.

Such damage transmissions from the political economy to the real economy need to be checked forthwith. The committee’s proposal to maintain the 3% target till 2019-20 before aiming for further reduction is pragmatic, as the ‘extraordinary and unanticipated domestic development’ of demonetisation happened during its tenure. Such an event, the committee has said, could trigger an escape clause from fixed fiscal targets in its proposed rule-based framework. Instead of focussing purely on the fiscal and revenue deficit numbers, which should be brought down to 2.5% and 0.8% of GDP respectively by 2023, the panel has called for paring India’s cumulative public debt as a proportion to GDP to 60% by 2023 — from around 68% at present. The latter, a simpler measure for solvency purposes, should inspire confidence among rating agencies. Though this has put paid to the government’s hope that a fiscal deficit range could be targeted instead of absolute numbers, the Finance Minister has committed to the 3% target for the next two years, from the 3.2% target for 2017-18. A clear fiscal policy framework in tandem with the monetary policy framework already adopted could act as a powerful signal of commitment to macroeconomic stability. The Centre must swiftly take a call on the panel’s recommendations — including for a new debt and fiscal responsibility law, and the creation of a Fiscal Council with independent experts that could sit in judgment on the need for deviations from targets. It is equally critical that States are brought on board, as the 60% debt target includes 20% on their account. Their finances are worsening again even as the clamour for Uttar Pradesh-style loan waivers grows.

Vocabulary

Attention: notice taken of someone or something; the regarding of someone or something as interesting or important.

Example: He drew attention to three spelling mistakes

Synonyms: awareness, notice, observation, heed, regard, scrutiny, surveillance

Conviction: a firmly held belief or opinion.

Example: His conviction that the death was no accident

Synonyms: belief, opinion, view, thought, persuasion, idea, position, stance

Largesse: generosity in bestowing money or gifts upon others.

Example: Dispensing his money with such largesse

Synonyms: generosity, liberality, munificence, bounty, bountifulness

Perverse: showing a deliberate and obstinate desire to behave in a way that is unreasonable or unacceptable, often in spite of the consequences.

Example: Kate's perverse decision not to cooperate

Synonyms: awkward, contrary, difficult, unreasonable, uncooperative

Spiked: impale on or pierce with a sharp point.

Example: She spiked another oyster

Synonyms: impale, spear, skewer, pierce, penetrate, perforate, stab

Tailspin: become out of control.

Example: An economy tailspinning into chaos

Synonyms: nosedive, dive, plummet, plunge, fall, rapid descent

Falter: start to lose strength or momentum.

Example: Her smile faltered and then faded

Synonyms: hesitate, delay, drag one's feet, stall, waver, vacillate, waffle

Stimulus: a thing or event that evokes a specific functional reaction in an organ or tissue.

Example: Areas of the brain which respond to auditory stimuli

Pragmatic: dealing with things sensibly and realistically in a way that is based on practical rather than theoretical considerations.

Example: A pragmatic approach to politics

Synonyms: practical, matter-of-fact, sensible, down-to-earth, commonsensical