Singh moots market discipline for fiscal accountability

Summary: N.K. Singh, the chairman of the 15th Finance Commission, emphasizes the need for global and Indian policymakers to rethink fiscal rules and incorporate market discipline for greater accountability. He suggests considering market discipline in sovereign spreads and explores the potential of Artificial Intelligence for real-time data to adjust fiscal policies effectively. Singh also highlights the importance of differentiating debt raised for infrastructure investments and suggests reevaluating fiscal norms to support renewable energy transitions and improve revenue measures.

Key Points:

• Compliance to Fiscal Rules: Globally, adherence to fiscal guidelines is often weak, prompting a call for integrating market discipline into fiscal rule design.

• Market Discipline as Accountability: Singh proposes using market discipline in sovereign spreads as a mechanism for ensuring fiscal accountability.

• AI for Policy Recalibration: Investigates the use of AI for achieving real-time data that could enable cyclically adjusted deficits, aiding timely policy adjustments.

• Infrastructure Investment and Fiscal Deficits: Advocates for treating debt for long-term growth-facilitating infrastructure differently in fiscal deficit assessments.

• Renewable Energy Financing: Suggests reconsidering fiscal norms to accommodate the financial needs of transitioning to renewable energy.

• Revenue and Fiscal Deficits: Highlights the interconnection between revenue measures, tax reforms, and economic growth, underlining the impact of revenue buoyancy on fiscal deficits.

Additional Insights:

• Technology in Fiscal Management: The exploration of AI in managing real-time fiscal data underscores the potential for technological advancements to enhance fiscal policy precision and responsiveness.

• Balancing Growth with Prudence: Singh's approach reflects a nuanced understanding of fiscal policy, advocating for balance between growth-promoting investments and fiscal prudence to ensure sustainable economic development.

Keywords Explained:

• Fiscal Rules: Guidelines or laws that set limits on government spending, borrowing, and debt, aiming to ensure sustainable public finances.

• Market Discipline: The influence of financial markets on the behavior of borrowers, including governments, by adjusting the cost of borrowing according to perceived risk.

• Sovereign Spreads: The difference in interest rates between a country's government bonds and a risk-free benchmark bond, reflecting the perceived risk of investing in that country.

Published in : The Hindu

Date appeared in newspaper : 08 April 2024

Link to the article (might require a paid subscription) : https://www.thehindu.com/todays-paper/2024-04-08/th_international/articleG59CL323H-6390516.ece

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