Subramanian and Kapur also said the Fifteenth Finance Commission (FC) should do-over the recommendations it had made in its first report for 2020-21, and should not submit its second report for 2021-22 to 2025-26 until the pandemic is well and truly dealt with. The 15th FC’s second report is expected to be submitted by end-October.
“The numbers given by agencies like the International Monetary Fund
and others are way too optimistic. Even one month’s loss in the output can lead to a 3 per cent fall in GDP. We will experience a sharp collapse in the output,” Subramanian said.
The IMF has cut its 2020-21 forecast for India to 1.9 per cent from 5.8 per cent, while the World Bank has reduced it to 1.5-2.8 per cent from 6.10 per cent. Other agencies like the Asian Development Bank, Nomura, Fitch, Goldman Sachs, and Moody’s have also slashed their forecasts for India.
“There are no good choices. The options are between what are the least-worst choices,” Kapur said. He said the Centre should also share with states the resources it borrows from the bond markets to deal with the pandemic, apart from what it distributes from the divisible tax pool and through various grants.
Kapur said the 15th FC’s second report could be delayed by eight months to a year, while Subramanian said for the short-term, there should be new recommendations, and for the longer term, the 15th FC’s second report should come ‘once the dust settles and this is behind us’.
“The current macro-fiscal framework has been overtaken by events. When the dust settles on the crisis, our fiscal and debt picture will be very different. We may even be looking at double-digit fiscal deficits,” Subramanian said.
Both argued in favour of an immediate relaxation by the Centre on fiscal laws.