How was Union Budget 2023–24 able to simultaneously consolidate the defi cit and increase capital expenditure? Where did the fiscal space come from? And where is the capex going? Stepping back, how are broader public sector dynamics evolving—both borrowing and capex? As debt has surged post pandemic, focus will turn to medium-term fi scal imperatives. What is India’s debt-stabilising nominal GDP growth? And if defi cits must be reduced in the coming years but health, education and infrastructure spending must simultaneously go up, where can the fi scal space come from? And why is it important to focus on direct taxes—instead of indirect taxes—on the revenue side, while increasing absorptive capacity to spend on the expenditure side? This essay seeks to answer these questions.
The Union Budget 2021–22 seems to be relying on capital investment-led growth for an economic recovery. But such an approach neglects those sections of the public that were the worst-hit by the COVID-19 pandemic.
Coming in the midst of the immense damage inflicted on the Indian economy by the COVID-19 pandemic, the 2021–22 Union Budget needed to perform the unenviable task of compensating households for massive livelihood losses as well as stimulating economic growth while maintaining some fiscal discipline. As it turned out, the government chose to focus on the second and third goals and largely ignored the first.
Analysing the second Karnataka budget since the Fourteenth Finance Commission award, it is noted that, as assured, more fiscal space is made available to the state government. With greater untied funds, the state has budgeted for higher capital expenditure in some key areas--urban development, police, and tribal welfare--even as it failed to build capacity for power generation, and has introduced too many schemes with too little funds allocated to each.
