Reward states which increase their capex on renewable fuels
Markets need to find a mechanism to reward fiscally prudent states: NK Singh
Using capital more efficiently is largely in the domain of states: Ajay Seth
Markets need to evolve more mechanisms to reward the states that are managing their fiscal responsibilities prudently and we need to reward states which increase their capital expenditure on renewable fuels, said Mr NK Singh, Chairman, 15th Finance Commission, and President, Institute of Economic Growth, while speaking at the Global Economic Policy Forum 2023 organized by the Confederation of Indian Industry (CII) in partnership with Department of Economic Affairs, Ministry of Finance in New Delhi. He was speaking at the session on ‘Strategizing India’s Prosperity: Roel of States’ held on December 8.
Today the markets don’t really differentiate on the cost of borrowing between a profligate state and a prudent state. He suggested that we should conceive of measures for the market to reward those states that manage their finances more prudently, asked Mr Singh.
“There is too much latitude for states to indulge, and almost no penalties for breaching the fiscal targets that the states have laid down for themselves. These are fiscal responsibilities that each of the state have fixed for themselves. The question of adherence to its own targets, and own fiscal responsibilities is an important one,” said Mr Singh.
There is a bail-out provision by the consolidated fund of India as far as the states are concerned, he said. Are states so comforted by this that they borrow heavily and do not worry about the cost of borrowing and those who lend are always assured that there will never be a sub-national bankruptcy at the state level, he asked.
The larger question before us today is how we harness technology, Artificial Intelligence and other emerging ones in a manner that is a growth multiplier, and how do we do it in a manner that we comply with environmental obligations that are inescapable, Mr Singh added.
“India’s great advantage is that the bulk of investment in India’s infrastructure has yet to take place, and so India can make choices to select environmentally friendly technologies. If India has this option, states particularly those which have lagged behind national averages have even more of these choices to exercise” he added.
More skills, more capital, and using them more efficiently is the need of the hour, said Mr Ajay Seth, Secretary, Department of Economic Affairs, Ministry of Finance. “We need to skill and reskill, both white-collar and blue-collar workers, and this is largely in the domain of the states. The cost of capital in the foreseeable future is going to be higher for our country compared to more advanced economies, the work on cost of intermediation is more in the union’s domain, but to use that capital more efficiently is largely in the states’ domain” added Mr Seth. Aspirational district programme has worked very well, perhaps we need aspirational states programme, he further added.
“Cooperative Federalism and Competitive Federalism both are important” said Mr Anand Mohan Sharan, Additional Chief Secretary, Industries and Commerce, and IT, Electronics & Communications and Higher Education Department, Government of Haryana. “Haryana has been leading state-rankings in Ease of Doing Business. Now we are also leading in ushering citizen centric reforms, which also help in improving ease of doing business. We have about 100 odd schemes and policies to support industries and entrepreneurs. That includes building an ecosystem for Electric Vehicles, and many other green policies,” said Mr Sharan. He suggested that there should be a centralised portal for all banks which do priority sector lending for the MSME applicants to openly and transparently check their application status.
8 December 2023
New Delhi