RBI conducts Study on impact of Govt expenditure on economy
Published: Sep 13, 2017
By TIOLCORPLAW News Service
MUMBAI, SEPT 13, 2017: THE Reserve Bank of India today released the DRG study titled, “ Some Macroeconomic Impacts of Different Types of Public Expenditure in India - Analysis Using a Computable General Equilibrium Model ”. The study examines the impact of various types of government expenditure on Indian economy, using a recursively dynamic computable general equilibrium (CGE) model over the period 2011-12 to 2025-26.
The main findings of the study are enumerated as follows -
• Fiscal expansion in boom period may lead to adverse impact on economy, while in recession when unemployment prevails, the positive impact of fiscal expansion were contingent upon the type of expenditure undertaken and the pattern of financing.
• Amongst alternative types of current expenditure, the expansion of government consumption scored over additional transfers to households in terms of impact on GDP.
• Between additional government current consumption and investment, the choice was not straightforward.
• Additional taxes on households to finance expansion of public investment did not fare well compared to government consumption.
• The shifting of government expenditure from current consumption to investment is not beneficial if the exchange rate regime is neutral.
Amongst all the policy options considered in this study, the shifting of government expenditure from current consumption to investments accompanied by a marginal depreciation of exchange rate of the Indian Rupee turns out to be the best in terms of overall impact on GDP and various other macroeconomic indicators including household real income per capita.
