The Reserve Bank of India (RBI) has released its annual report for the fiscal year 2022-23, highlighting significant improvements in the general government deficit and debt. The report notes that the general government deficit moderated to 9.4% of GDP, while the government debt stood at 86.5% of GDP. These figures represent a decline from the peak levels of 13.1% and 89.4% recorded in 2020-21, respectively.
Fiscal Consolidation and Investment Revival
The RBI report acknowledges the government’s commitment to credible fiscal consolidation. It credits the government for leading the revival in the investment cycle through increased capital expenditure. The report emphasizes the multiplier effects of augmented capital expenditure in crowding in private investment and lifting the economy’s growth potential.
Sustaining Fiscal Consolidation
Looking ahead, the RBI emphasizes the need to sustain fiscal consolidation to rebuild policy buffers and ensure debt sustainability. It highlights the importance of continued efforts to digitize the economy, which can aid in greater formalization and expand the tax base. This, in turn, would generate the necessary resources to undertake developmental expenditure.
Impact of Digitization
The report suggests that the continued thrust on digitization can contribute to a higher tax base by bringing more economic activities into the formal sector. As more transactions and economic interactions are conducted digitally, it becomes easier for the government to capture these activities and generate tax revenue. This increase in tax collection would provide the necessary resources to support developmental expenditure, thereby fostering economic growth.