India's FRBM Act will probably have to be revised by the end of the year as the country will witness a sharp decline in GDP growth due to the Covid-19 crisis.
That's according to India's former chief economic adviser Arvind Subramanian, who believes that while labour reforms are necessary, the way they have been carried out by some states undermines basic protection to workers—especially in light of the migrant crisis.
"It is going to be a very, very difficult economic year. We should brace ourselves for a sharp decline in GDP growth,” Subramanian said during a webinar organised by EY India on Wednesday. "India's fiscal situation is going to be very very difficult. India's Debt-to-GDP ratio will rise to 85% once the dust settles.”
The lockdown has made stronger the case for a Universal Basic Income in India, the economist said, adding that reviving the financial sector is going to be critical for stimulating economic growth.
Talking about India's macroeconomic situation amid the pandemic, he said the Fiscal Responsibility and Budget Management Act, 2003, and terms of reference of the 15th Finance Commission will probably have to be revised and updated.
"Compare to the Budget 2020-21, I think facts have changed. We will probably have to revise, and update budget numbers, the FRBM framework and the terms of reference of the 15th Finance Commission at the end of the year," he said.
The Rs 20 lakh crore economic package—announced by the government to mitigate the coronavirus' impact on the Indian economy—will swell India's debt-to-GDP ratio to 85%, the Harvard University professor said.
Subramanian also noted that the pandemic in India is not under control. "Developing countries are much more vulnerable and have less fiscal space than advanced economies. Lockdown has been much more severe on developing countries.”
Also Read: India's Path to World-Beating Growth Looks Tough
"It will take a lot of hard work for India to again start growing at 6%" as it went under the world's strictest lockdown when the economy was already slowing, he said.
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