All Union budgets have two common objectives—job creation and sustaining economic growth. But the need is more pronounced now and Budget 2023—also India’s second pandemic budget—warrants the government to take over the baton from the RBI’s monetary policy and restore fiscal dominance. Globally too, central banks, which rushed to the frontlines when the pandemic first hit us in 2020, are rolling back unconventional measures hoping that fiscal policy will evolve from being complementary to being substitutive. Given the need for higher public expenditure, particularly in infrastructure, health and education, without elevating national debt to unacceptable levels, Finance Minister Nirmala Sitharaman has a complex task of balancing growth and fiscal consolidation.
As economic recovery gains pace, it’s essential to ensure that a rising tide must lift all boats. Specifically, the distress in the informal sector and the lower end of the income cycle is starting to compound. Signs of weakness were visible even during the 2018-19 economic slowdown, and the pandemic dealt a disastrous blow. Now, the government cannot afford to leave out sectors or sections of society behind, which means job creation, including for the low and semi-skilled, is an absolute necessity. Private consumption and investments are still a work in progress, and hence government expenditure must continue to drive near-term recovery.
Though the government began the current fiscal with an aggressive focus on capital expenditure, the momentum slowed down with only half the budgeted amount being spent as on November 2021. If the recent blanket curbs on departments to rationalise expenditure halted the Centre’s spending binge, even those with approved mandates like the National Infrastructure Pipeline and drinking water programmes have needlessly slowed down. Helpfully, some of the pandemic-related expenses including subsidies are unlikely to be rolled over next fiscal, taking the pressure off the expenditure budget and freeing up fiscal space. Disinvestment proceeds too will likely chip in FY23, if not in FY22, so Sitharaman shouldn’t excessively worry about debt and deficits and instead focus on kick-starting the economic engine.