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Home News

What is Cooking in the Finance Ministry?

by Janam Web Desk
Jan 31, 2021, 07:56 pm IST
in News, India

Finance minister Nirmala Sitharaman has promised that this year’s budget will be one like never before. Well, she does not have much of choice. Unlike US and UK Governments which have paid out salaries of workers across the board, be it government or private sector – the Indian Govt cannot splurge. Our tax paying population is miniscule, just 4% of the population pays income tax. Given such a situation the Government has no option but to borrow and spend more than its revenues. That is where the Fiscal deficit kicks in.

The difference between total revenue and total expenditure of the government is fiscal deficit. Like in any household, the negative balance arises whenever a government spends more money than it receives in the form of taxes and other revenues. The other revenues includes disinvestment and interest income. India has had fiscal deficit for over 40 years, the last known year of fiscal surplus was in mid 1970s.

Given that the country was in a lockdown mode for at least four months starting April 2020, the Govt had to announce stimulus measures that ran till Nov 30, 2020

The economic stimulus included Pradhan Mantri Garib Kalyan package at Rs 1,92,800 cr; Atmanirbhar Bharat Abhiyaan 1.0 Rs 1,102,650 cr. PMGKP Anna Yojana which was extended till November 2020 at Rs. 82,911 cr. The Atmanirbhar Bharat Abhiyaan 2.0 saw a spend of Rs 73,000 while Atmanirbhar Bharat Abhiyaan 3.0 saw a jump to Rs 2,65,080 cr. The measures announced by Reserve Bank of India till October 31 was to the tune of Rs 1,271,200. In total the stimulus packages saw a spend of Rs 29,87,641 crores.

The V shaped recovery curve is an indication of how the economic stimulus has worked and leading business editors like Swaminathan Iyer have expressed their appreciation for the handling of the economy. Infact the IMF has indicated that India’s growth be among the highest in the next fiscal with GDP growth at 11.5%.

While there was a 23.9 per cent contraction in GDP in Q1, the recovery has been a

V-shaped one as seen in the 7.5 per cent decline in Q2 and the recovery across all key economic indicators. In line with learning from economic research, economic activity in States with higher initial stringency has rebounded faster during the year.

On the economic policy front, India recognized that, unlike previous crises, the Covid pandemic affects both demand and supply. Furthermore, given disruptions in the labour markets that can affect disposable income and firms suffering financial distress, the loss of productive capacity due to hysteresis could not be ruled out. Therefore, a slew of structural reforms were announced; together, these would help to expand supply significantly in the medium to long term.

On the demand side, at the onset of the pandemic, India’s policies focused purely on necessities. This was optimal given the uncertainty and the resultant precautionary motives to save as well as the economic restrictions during the lockdown. After all, pushing down on the accelerator while the brakes are clamped only wastes fuel. During the unlock phase, demand-side measures have been announced in a calibrated manner.

A public investment programme centred around the National Infrastructure Pipeline is likely to accelerate this demand push and further the recovery. The upturn in the economy while avoiding a second wave of infections makes India a sui generis case in strategic policymaking amidst a once in-a-century pandemic.

Tags: India's GDPV shaped recoveryMAINUnion Budget 2021FEATUREDAtmanirbhar Bharat AbhiyaanGDPHalwa CeremonyFinance MinistryIMFParliament budget sessionNirmala SitharamanBudget session 2021
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