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Quality expenditure and fiscal sustainability
Why is it in News?
- According to RBI governor, improvement in fiscal expenditure will help in fiscal sustainability.
Details:
- Fiscal expenditure can achieve both growth and fiscal sustainability.
- He highlighted the need for expenditure to focus on the “multiplier effect”.
- He stressed the need for banks and non-bank finance companies to build “risk culture” and “compliance culture” in order to strengthen the stability of India’s financial system.
- According to him, the central bank remains steadfast to take any measures that are necessary to support the economy.
- He warned the domestic financial market to be prepared for any halt in foreign inflows.
- He acknowledged that fiscal deficits of governments around the world will emerge out of the pandemic at a very high level.
- Private and public sector banks need to fast-track their efforts to raise capital and take advantage of the benign financial conditions.
- Multiplier effects:
(1) It refers to the proportional amount of increase, or decrease, in final income that results from an injection, or withdrawal, of spending.
(2) The most basic multiplier used in gauging the multiplier effect is calculated as change in income / change in spending.
