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Govt may have to continue with an expansionary fiscal stance

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New Delhi, Jan 29 (IANS) Even at the cost of further enlarging the country’s fiscal deficit, the Economy Survey 2020-21 has fully backed the government’s expansionary policies, suggesting that this is required even in the future in order to sustain the recovery in aggregate demand.

The suggestion indicates that the path to fiscal consolidation will be long drawn and the government may continue to stretch its budget further to enlarge spending aimed at generating demand in the economy that holds the key to put the economy back on the growth path.

“The fiscal policy response of the government has been a combination of demand and supply side policies under the ambit of ‘Aatmanirbhar Bharat’ to cushion against the pandemic shock, and subsequently fuel the economic recovery. Going forward, in order to sustain the recovery in aggregate demand, it is expected that the government may have to continue with an expansionary fiscal stance,” said the survey which was presented in the Parliament on Friday.

The recommendations came on a day when the country’s fiscal deficit touched 145 per cent of the budget target at Rs 11.5 lakh crore. With fiscal slippage getting further enlarged in the Covid impacted year, FY21 is estimated to end the year with a fiscal deficit of 7 to 7.5 per cent of GDP or Rs 14.5 lakh crore.

This high level of deficit would mean that the government would have to weight heavily on a revival of the economy to get some increase in revenue collections.

Also, the government’s disinvestment and privatisation plan would be tested in FY22.

“While reviving growth in the economy is important, the government should not completely lose track of fiscal consolidation as it has long term implications on the health of economy and will adversely start impacting other sectors. At 7.5 per cent, the fiscal deficit already looks quite out of control and the government in the budget should now show how it intends to check this expansion and come back on the path of fiscal discipline,” said an economist with a leading global consulting firm, asking not to be named.

While advocating fiscal expansionary policies to revive growth, the survey observed that this deviation from the path of fiscal consolidation may, however, be transient as the fiscal indicators may rebound with the recovery in the economy.

“The calibrated approach adopted by India allows space for maintaining a fiscal impulse the coming year. The growth recovery would facilitate buoyant revenue collections in the medium term, and thereby enable a sustainable fiscal path,” the survey said.




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