Debt, Deficit, and Fiscal Risks of the Union Budget for 2022–23

With the COVID-19 pandemic hitting India in early 2020, the fiscal deficit of the union government almost doubled from `9,33,651 crore in 2019–20 to `18,18,291 crore in 2020–21. This deficit was more than double the budget estimate (BE) of `7,96,337 crore in 2020–21.<sup>1</sup> With widespread morbidity, including numerous deaths and lockdowns for preventing the contagion of the virus, supply chains broke down and there was a major loss of business, jobs, and livelihoods. Between 2019–20 and 2020–21, the gross domestic product (GDP) at current prices declined by 3.0% from `2,03,51,013 crore to `1,97,45,670 crore; and, as a proportion of the GDP, the union government’s fiscal deficit more than doubled from 4.6% to 9.4%.² Large increases in fiscal deficit from the preceding year as well as BE, though not on such a large scale, had been seen before in 2008–09 and 2011–12 with the great recession (Figure 1, p 17).

The increase in fiscal deficit in 2020–21 was in line with what many countries were also doing and what the generally conservative International Monetary Fund (IMF) was asking countries to do in response to the COVID-19 pandemic (Gopinath 2020). In 2020–21, the policy stimulus cumulated to 15.7% of the GDP, including liquidity and other measures taken by the Reserve Bank of India (RBI).³ In 2020–21, whether the stimulus in general or the fiscal expansion in particular should have been even more than what the union government did, as some argue, is beyond the scope of this article. What the article focus on is the fiscal stance in terms of debt and deficit in 2021–22 and 2022–23.