Chennai: The Indian economy is currently at an inflection point – recovering from the twin shocks of the pandemic and associated health measures, say experts.
“The fiscal expansion illustrated in the Budget was, therefore, imperative to give necessary ‘escape velocity’ needed for the Indian economy to overcome the ‘influence-sphere’ of once-in-a-century shock,” according to Gurvinder Kaur and Surbhi Jain, both IES officers serving in Department of Economic Affairs.
The Fiscal Deficit target, which indicates the borrowing requirements of the Government, has been revised sharply upward to 9.5 per cent of GDP in FY21 RE, from 3.5 per cent of GDP in FY21 BE. While 30 per cent of this increase was attributed to shortfall in revenue collection, the remaining 70 per cent was due to higher public expenditure during the year.
“On similar lines, a higher fiscal deficit target of 6.8 per cent has been set for FY22 BE. It is, therefore, evident that India has adopted a counter-cyclical fiscal policy – expansionary during economic downturns (and contractionary in good times),” they said.
Expansion in public expenditure amidst an economic crisis, is often accompanied by concerns regarding the sustainability of rising debt. Owing to the expected sharp increase in the borrowings (Fiscal deficit) during FY21, as reflected in the Union Budget 2021-22, the Central government debt to GDP ratio is expected to shore up in FY21.