Growth Impetus, Fiscal Dominance and Macroeconomic Concerns

The budget focuses on accelerating growth by increasing capital expenditures and compressing the fiscal deficit. However, excluding the additional loan to the states, the capital expenditure as a ratio of gross domestic product is actually lower. Reducing the fiscal deficit by compressing subsidies and transfers may also pose challenges. Finally, the interest-free loan to the states seems to be a strategy to ensure binding control over their borrowings for the next 50 years.

Customarily, the Union Budget attracts disproportionate attention. It is disproportionate because although the union government raises about two-thirds of the total revenues collected, its share in public spending and role in the actual delivery of public services is only about a third of the total. Furthermore, in important social services like education and healthcare, the union government’s share is less than 20%–25%. Similarly, the union government’s share in incurring capital expenditures is just about a third of the total. Nevertheless, the union budget is important due to its macroeconomic implications, the policy directions and signals it emits and the growth impulses it can emit. Reviewing this year’s budget is particularly important to analyse the strength and direction in reviving and accelerating economic growth in the pandemic-hit economy and also the attempts to achieve fiscal consolidation to contain the ballooning debt and addresses short- and medium-term concerns about the declining trend in investments and the creation of new jobs. This article is an attempt to understand the implications of the union budget this year.