Cogencis, Wednesday, Jan 6, 2021
By Siddharth Upasani
Talk of normalisation of the extraordinarily expansionary policies prevailing across the world has been on for some time. After all, government debt rose at an unprecedented pace in 2020. According to Fitch Ratings, global government debt rose by about $10 trln in 2020 to $77.8 trln--or 94% of the world GDP. In contrast, it took seven years--from 2012 to 2019--for global government debt to rise by $10 trln.
Even in India, the Reserve Bank of India has spoken of withdrawing the various regulatory relaxations and the massive surplus liquidity only at an appropriate time, whenever that may be. New Delhi, on the other hand, has been more mindful than its peers, keeping a tight hold on its purse strings. That, however, will not be enough to prevent a doubling of the fiscal deficit this year.
As the global vaccination drive gathers pace and economic activity edges closer to pre-coronavirus levels and rates, policy normalisation will be more than just talk. In anticipation of the same, economists have begun sounding warnings over the return of austerity.
Earlier this week, Laurence Boone, the Organisation for Economic Co-operation and Development's chief economist, told the Financial Times that the pursuit of quick fiscal consolidation through austerity or tax hikes would likely result in a public revolt.
Once the crisis ends, Boone told the financial daily, "people are going to ask where all this money has come from".
Boone's comments mark a U-turn of sorts for the OECD, which favoured austerity post the global financial crisis. Now, the economist, who joined the OECD in 2018, is calling for the continued use of fiscal policy up to two years after growth has bottomed out and ditching the "one-size-fits-all fiscal rules".
The debate on government debt and its advisable limits will likely intensify in the coming years. If Boone's remarks are anything to go by, they might well be driven by the public. End
Edited by Ashish Shirke