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Officially, fiscal deficit includes state borrowing. Could India consider increased government borrowing and a change in fiscal deficit targets to address the “climate deficit”? The rationale for such a deficit is that the positive impacts of climate management outweigh the negative impacts such as higher inflation.
A better way to take action on the deficit would be to reduce climate-related spending so that inflation increases gradually rather than by leaps and bounds. From the RBI’s point of view, this is “out of the curriculum” as its mandate is essentially for the orderly development and management of inflation and currency expectations. It may be wise to delay interest rate cuts as rate cuts affect only aggregate demand and not the demand pattern. The “climate deficit” clearly identified as part of the Union Budget will also address demand patterns.
A major positive outcome of this could be that bank finance would rapidly follow government expenditure. The “rush” of private spending on climate-related projects could actually have a positive impact on both climate justice and overall GDP growth. If acted upon judiciously, a healthy “climate deficit” could lead to a win-win combination. There is a need for dialogue between RBI and the government on this.
If one uses the analogy of good and bad cholesterol, a planned climate deficit would be like a “good deficit.” Data from the National Statistical Office shows that there has been a slowdown in capital expenditure at both the central and state levels, leading to a decline in growth.
Gross fixed capital formation (GFCF), often a proxy for infrastructure investment, stood at 30.8 percent of GDP in the July-September quarter, down from 31.3 percent in the previous quarter. According to the Controller General of Accounts, capital expenditure utilization was only 37.3 per cent in the second quarter, down from 49 per cent in the year-ago quarter. In rupee terms, this is a decline of about Rs 76,000 crore.
If expenditure, not just in volume but in flow and focus, reaches a healthy balance between social, environmental and development objectives, a decline in growth rates is not a cause for concern. My quick calculations show that 10 of the 17 UN Sustainable Development Goals could be addressed with the climate deficit as a fiscal instrument.
As talks begin for the Union Budget in February, the mood is right to think outside the normal fiscal box.
(The author is a senior journalist and commentator who has worked for Reuters, Economic Times, Business Standard and Hindustan Times. He can be contacted on Twitter @madversity. This is an opinion article and the views expressed are the author’s own.) Are. The Quint Neither endorses nor is responsible for them.)
