A Reasonably Good Performance

Budget focus is on expenditure to accelerate growth. Deficit will be exceeded

- C Rangarajan

The expectations from the Budget were many. Fiscal 2020-21 is the worst year India has seen on economic performance since Independence. CSO had estimated that the economy would shrink by 7.7%. Other forecasts are even more grim. The Budget was expected to address two problems: To provide a strong stimulus to growth and to cast itself in a framework both credible and acceptable. On both these counts, it has performed reasonably well.

On the revenue side, the Budget has not levied any new tax, direct or indirect which itself has given great relief to taxpayers. There are however certain other tax changes which have been welcomed. Centre’s tax revenue for 2021-22 is budgeted to increase by 14.9%. The implied tax buoyancy is a little over 1 because GDP is expected to increase by 14.4%. The key question is, will GDP increase by this percentage? Earlier, it was put out by the government that real GDP will grow by 11%. These projections appear optimistic. This has a direct bearing on fiscal deficit.

The Budget has made a sincere attempt to pull up the economy. The emphasis on capital expenditures is well taken. There’s a substantial increase as a proportion of GDP. The shift is more in the composition than the total of expenditures. It’s unlikely that the fiscal deficit will hold. We shouldn’t be surprised if it exceeds.