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RBI’s bond buys helped India during pandemic, Kerala’s public health service has ‘excellent reputation’: UNESCAP

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The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) on Tuesday attributed India’s wider fiscal deficit to both discretionary measures and the direct impact of the Covid-19 pandemic on revenues, with the latter playing a more prominent role and pegged the gross financing needs of the country at 10-16% of the gross domestic product (GDP).

In its report ‘Beyond the pandemic: Building back better from crises in Asia and the Pacific’, it also said in the Asia Pacific region, many central banks have been buying government bonds, as in India, and early evidence suggests that such interventions were helpful as bond yields declined, and exchange rates stabilized.

“In Asia and the Pacific, many central banks have been buying government bonds, as in India, Indonesia, the Philippines, the Republic of Korea and Turkey. Early evidence suggests that such interventions were helpful: bond yields declined, and exchange rates stabilized,” it said.

In an unprecedented move, the Reserve Bank of India (RBI) has announced buying bonds worth Rs 1 lakh crore in the first quarter, to keep interest rates in check as part of its efforts to support growth.

As per the report, Kerala has a public health service with an excellent reputation and building on its experience from previous epidemic outbreaks, Kerala mobilized a state-wide response working with local social partners in a more coordinated and coherent manner.

“Health is high priority and the state has invested in its system, ensuring sufficient health workers,” it said.

The UN agency said that despite the narrowing fiscal space, Asia-Pacific governments responded to the Covid-19 pandemic in an unprecedented manner and by September 2020, 45 developing countries in the region had announced fiscal packages, together with accommodative monetary and financial policies, amounting to some $1.8 trillion, or about 6.6% of their combined 2019 GDP.

“Nevertheless, this was far smaller than that of the world’s developed countries, where average fiscal packages amounted to about 20% of GDP,” it said.

In South and South-West Asia, the ratio was highest in Turkey and Bhutan at 14% and India at 7% of the GDP but in other members of the South Asian Association for Regional Cooperation (SAARC), it averaged only 1.6%, reflecting tight fiscal space in countries such as Pakistan and Sri Lanka

It said in India and several economies of the Association of Southeast Asian Nations (ASEAN) gross financing needs are likely to be between 10-16% of the GDP.

The agency called for opportunities to borrow more against public assets and suggested that the first step is to include assets such as land, property, and state-owned enterprises in government balance sheets more transparently.

“It is estimated that globally such measures could raise up to $3 trillion a year by 2024, enough to fund the entire incremental cost of crisis-related debt service, until at least 2032. India, for example, is making use of such measures,” it said.

It also emphasised that it is important to ensure that additional spending is not misdirected, particularly through corruption. Public procurement should be fully transparent, with expenditure controlled through legislation and stronger enforcement on corruption and money laundering.

The UNESCAP said India in its February 2020 Budget introduced a tax of 2% on aggregate revenue for large e-commerce companies and a goal worthy of consideration is that developing countries commit all additional flows arising from such taxation of multinational enterprises to financing the sustainable development goals.

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