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Budget 2021: Tightrope walk between higher spending and fiscal deficit

The Economic Survey released on Friday spoke about raising health expenditure by at least two-and-a-half times. 

Published: 31st January 2021 12:30 AM  |   Last Updated: 31st January 2021 09:40 AM   |  A+A-

Union Finance Minister Nirmala Sitharaman (Photo | Shekhar Yadav/EPS)

Union Finance Minister Nirmala Sitharaman (File photo| Shekhar Yadav, EPS)

Express News Service

NEW DELHI:  Monday’s budget, the first full one after the pandemic, will be a tightrope walk for the finance ministry as it tries to balance the need to spend more to meet the Covid challenges while battling a runaway fiscal deficit.

The government wants to step up spending on both infrastructure as well as on healthcare. 

The first to stimulate growth by creating demand for construction and industrial goods, which have been depressed for long due to the pandemic, and the second because India’s public health care has been found inadequate to meet the challenges of a pandemic of this nature.

The Economic Survey released on Friday spoke about raising health expenditure by at least two-and-a-half times. 

At the same time, given the pressure from the ongoing farmer agitation, the finance ministry is likely to announce both stepped up investment in irrigation and agriculture as well as a higher interest subsidy for the farm sector along with a bigger credit lines.

North Bloc officials are talking of increasing the current farm loan target of Rs 15 lakh crore a year by a whopping 25 per cent.

Despite the increased demands for money allocations, the government’s ability to raise revenues will be challenged by the lingering effects of the Covid-19 pandemic. It will also grapple with the fact that it needs to give tax sops to the salaried and working class, given the job losses and pay cuts they have suffered during the pandemic, while also putting money into their pockets to spend and help boost demand. 

Analysts place the current year’s fiscal deficit at between 7-8 per cent of GDP.

The finance ministry could bring that down by off-budgeting some of the spending or rolling-over payment of some bills to the next year, but even then the deficit would be nearly double the targeted 3.5 per cent of GDP.

The Centre’s borrowing, which pays for the deficit, has sharply raised India’s public debt  to GDP ratio from 68 per cent in 2015 and 72 per cent in 2019 to well over 80 per cent this year. 

Officials say they would start tapering off the high fiscal deficit from this budget onwards and would like the printed fiscal deficit for the coming year to be around 4.5-5 per cent and in years ahead, this would be tapered off further to 2.5-3 per cent, as the economy picks up.

Putting money into the pockets

Despite the increased demands for money allocations, Indian state’s ability to raise revenues will be challenged by the lingering effects of the pandemic as also by the fact that it will have to give some tax sops to the working class, given the job losses and pay cuts they have had to suffer



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