![]() ![]() The FRBM targets should not be lost sight of completely. It must stay on this path of careful, calibrated balancing of consolidation against its fiscal responses to the pandemic and growth shocks. What is the way out then? In face of tremendous pressure for expansionary fiscal policies, the central government has so far shown restraint, while providing funds from the budget for critical spending: the vaccination programme and basic relief measures of small cash transfers and food grains for the poor and vulnerable. In the past, as we have seen, this has been done to ensure that the limits are not breached. ![]() ![]() Any move to rein in the states’ deficits falls on their capex, as it is discretionary. The states’ challenge is that they are bogged down by fiscal deficit target compulsions which constrains their ability to borrow more. The combined capex of the states tends to be larger than that of the Centre. Even if states pitch in, public investments cannot make too large a difference. But the main reason why over-relying on higher government capex may not fire up growth is that the capex of the centre is not large enough-it was at FY22 at ₹5.54 lakh crore-to drive an economy of the size of ₹232 lakh crore. Keeping a close watch on the fiscal deficit is of course absolutely essential. The trouble with this set of arguments is not the primacy of fiscal consolidation. And so, the onus falls on the government to kickstart languishing investments. The surplus capacity creates little incentive for the private sector to enhance infra spending unless demand picks up considerably. There is a view out there that higher government spending, especially on investment, is absolutely critical as the private sector is still not in a position to drive the economy and is unlikely to shed caution for another year. The vaccination programme has provided this confidence. There is a degree of assurance that any more Covid waves, if any, will pose lesser economic disruption. The economy is still not back on track and, while growth has recovered to an extent in FY22, FY23 will be the year for consolidation. But some judgement needs to be borne here. ![]() Agreed, there is the compulsion to move back to the fiscal prudence path and achieve the 4.5% ratio by FY26. There is a compelling case for measured flexibility in targeting the fiscal deficit number for FY23. ![]()
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