The Fifteenth Finance Commission (XVFC) had online meetings with its Advisory Council on 23-24 April, 2020 and discussed various issues confronting the Commission now.
The Members of the Advisory Council felt that the impact of the #COVID pandemic and the national #lockdown on the #Indian #economy can come through the #slowdown in the domestic activity, its impact on the cash flows of financial institutions and business enterprises and the loss of global demand for Indian products because of a steep global recession.
Once the lockdown of the economy is released, the recovery can only be excepted to be gradual, depending on the ability of the workforce to get back to work soon, restoration of supplies of intermediates and cash flows, and, of course, the demand for output. Therefore, the full magnitude of the economic impact of will only be clear only over the course of time.
Governments will have substantial expenditure burden on account of health, support to poor and other economic agents. The Council Members felt that the shortfall in tax and other revenues will be largely due to subdued economic activity. Hence, fiscal response to the crisis should be much more nuanced. It is important not just to look at the size of the fiscal void response but also carefully at its design. The Council apprised the Finance Commission of the different suggestions floating around in terms of public expenditure support to the economy.
They felt that the following considerations, inter alia, would be very important:
(a) Small scale enterprises were cash-starved even prior to the onset of. As their activity levels and cash flows are affected, it is important that a support mechanism is devised to help them overcome this problem.
(b) Non-banking financial companies are also affected by the slowdown. In order to avoid bankruptcies and deepening of NPA's in the financial sector, measures should be appropriately designed. Measures like partial loan guarantee may help. The Reserve Bank of India will have a key role in ensuring that financial institutions are well-capitalized.
(c) The finances of the Central and State Governments need to be watched carefully. As of now, adequate provision for ways and means advances can largely help governments to manage cash-flow mismatches. As we move ahead, we need to think of options for financing the additional deficit. It is important to ensure that the State governments get access to adequate funds to undertake their fight against the pandemic.
(d) The Council also felt that it is likely that different States may come out of the severity of the impact of the pandemic in different stages. Hence, the revival of activity in different States will be at a varied pace.
Fifteenth Finance Commission along with its Advisory Council is keenly watching the evolving situation globally as well as domestically.
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