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COVID to erode fiscal consolidation
Why is it in news?
- According to a RBI report, the additional outgo to combat the impact of COVID-19 will significantly erode the fiscal consolidation of the governments.
- RBI has dwelled on COVID-19 and its Spatial Dimensions in India.
More from the Report:
- The Gross Fiscal Deficit (GFD) of the States would spiral during the current fiscal.
- States have budgeted their consolidated GFD at 2.8% of GDP in 2020-21.
- However, the COVID-19 pandemic may significantly erode the fiscal consolidation achieved by the State governments in the past three years.
- The next few years are going to be challenging for the States.
- Quality of spending and the credibility of State budgets will assume critical importance.
What is Fiscal Consolidation?
- Fiscal Consolidation refers to the policies undertaken by Governments (national and sub-national levels) to reduce their deficits and accumulation of debt stock.
- Improved tax revenue realization and better aligned expenditure are the components of fiscal consolidation.
- Fiscal deficit is the main indicator to show the fiscal health of the government. It indicate the amount of government borrowing for that particular year.