ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Articles By Sudipto Mundle

Massive Capital Expenditure, Modest Fiscal Consolidation, and Cut in Pillars of Social Safety Net

The finance minister’s five budgets, including the 2023–24 budget, demonstrate a welcome commitment to transparency. They also reveal a clear strategy of combining high capital expenditure-led growth with fiscal consolidation. But post the pandemic, these strategic priorities have been pursued at the cost of weakening the two key pillars of India’s social safety net—food subsidy and the Mahatma Gandhi National Rural Employment Guarantee Act income support.

The Budget Bets on Capital Expenditure to Revive Growth

The budget has bet on a hard strategy of government capital expenditure-led growth. This article looks at how the massive increase in capex is planned along with continuing fiscal consolidation in the context of the budget strategy. It also discusses the receipts and expenditure budgets. Finally, it concludes after discussing the likely macroeconomic impact of the budget.

Fiscal Compression, Jeopardised Recovery, the Humanitarian Crisis and Reforms

This paper assesses the impact of the budget on the economic recovery, debt dynamics and fiscal–monetary policy interaction. It also looks at how the budget has addressed issues of lives and livelihoods. It concludes by noting that the fiscal stance of compression in the 2021–22 budget has jeopardised an already faltering economic recovery that is now jeopardised by the second wave of the pandemic.

 

Fiscal Restraint Trumps Fiscal Stimulus

The 2020 Union Budget has failed to provide any fiscal stimulus based upon the assumption that there is no fiscal space for providing growth stimulus. In doing so, it missed out on the opportunity of leveraging an additional fiscal space of around 10% of the gross domestic product that could have been tapped through revenue and expenditure rationalisation measures.

 

Subsidies, Merit Goods and the Fiscal Space for Reviving Growth

The incidence of implicit and explicit budget subsidies provided by the central and state governments has declined from about 12.9% of the gross domestic product in 1987–88 to 10.3% at present, with the bulk of these subsidies being provided by the states and about half being spent on non-merit subsidies. This paper argues that rationalisng non-merit subsidies is one of several deep fiscal reform measures that could together free up massive fiscal space that can be used to finance an inclusive growth revival strategy.

Inclusive Fiscal Adjustment for Reviving Growth

Unrealistic revenue projections leading to strong expenditure compression is primarily responsible for India’s growth deceleration. Growth will decelerate further without a programme of deep fiscal adjustment. How a fiscal space, amounting to over 6% of the gross domestic product, can be freed through such an adjustment programme is demonstrated. This space can be potentially used for an inclusive public expenditure-led strategy for reviving growth.

Stimulus, Recovery and Exit Policy: G20 Experience and Indian Strategy

There are large variations among the g20 countries in their deceleration experiences, transmission mechanisms and their current macroeconomic outlook. In an integrated global economy, it is essential that the major economies coordinate their policies. But coordination does not imply simultaneous stimulus withdrawal from all g20 countries. Indeed, a phased withdrawal is probably the best guarantee against the risk of a negative global shock leading to another recession in the event of a simultaneous stimulus withdrawal from all g20 countries. Hence, this paper argues that each country needs to set the timing, scale and composition of its stimulus withdrawal keeping in mind its own macroeconomic outlook.