India's primary deficit (Centre and states) for FY21 is assumed to be 6.8 per cent of GDP, according to the Economic Survey tabled in Parliament on Friday.
It said the Covid-19 pandemic has created a significant negative shock to demand.
Active fiscal policy -- one that recognises that fiscal multipliers are disproportionately higher during economic crises than during economic booms -- can ensure that the full benefit of seminal economic reforms is reaped by limiting potential damage to productive capacity.
As the interest rate-growth differential (IRGD) is expected to be negative in the foreseeable future, a fiscal policy that provides an impetus to growth will lead to lower -- not higher -- debt-to-GDP ratios, said the survey.
In fact, simulations undertaken till 2030 highlight that given India's growth potential, debt sustainability is unlikely to be a problem even in the worst scenarios.
The survey said that to ensure that the economy remains in good health to avail the full benefit of these significant reforms, the economic bridge to medium and long-term has to be created.
Only an active fiscal policy -- one that recognises that the risks from doing too little are much more than the risks from doing too much -- can ensure that this economic bridge is well laid out.
"In order to sustain the recovery in aggregate demand, the government may have to continue with an expansionary fiscal stance," said the survey, adding the growth recovery will facilitate buoyant revenue collections in the medium term and enable a sustainable fiscal path.
It said more active, counter-cyclical fiscal policy is not a call for fiscal irresponsibility. It is a call to break the intellectual anchoring that has created an asymmetric bias against fiscal policy.
( With inputs from ANI )
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