Mapping The Growth Route

Reviving the economy through capital spending should be top priority; fiscal consolidation will have to wait

- SALIL PANCHAL & SAMAR SRIVASTAVA

As the impact of the pandemic recedes, Budget FY22 has its task cut out: Get growth back on track while laying out a roadmap to address a dire fiscal situation. It’s a fine balance that the government needs to get right. While at the very least it would set the course for the next 12 months, industry would also be looking to the Budget for clues for medium term policymaking for, say, the next five years.

As things stand, a sharp decline in revenue has prompted the government to meet the deficit through borrowings. In the financial year ending March 2022, the fiscal deficit for the central government is expected to touch 7 percent of GDP as compared to a planned 3.5 percent when Budget 2021 was presented. Add an additional 5 percent for the states as well as off balance sheet borrowing and the number gets to 13 percent of GDP.

According to economists, the key to reviving growth is government spending on capital assets that would have a multiplier effect on business economy. Roads, railways, ports and irrigation systems would boost output and get economic activity going. “You cannot consolidate on the basis of expenditure reduction. Instead spend more and use the multiplier effect of that to get higher tax collections,” says Abheek Baru, chief economist at HDFC Bank.

NEEDED: AGGRESSIVE DISINVESTMENT