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Fiscal Space and Union Budget 2020–21

This article points out some drawbacks in the criticism of the Union Budget 2020–21. It notes that the critique suffers from some limitations, ranging from oversimplified solutions, analytical deficiencies and outright factual errors.

 

Union Budget 2021–22: Is Capital Expenditure Enough for an Economic Recovery?

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.

Impact of Covid-19 and What Needs to Be Done

Tackling the Covid-19 outbreak will require political will and decisive actions from the government in terms of ramping up the healthcare infrastructure, ensuring public distribution of essentials to fulfil basic needs, and income transfers to the poor, among others. The government should not constrain such expenditures in view of maintaining the permissible limit of fiscal deficit. A higher fiscal deficit may not be inflationary now, since demand is drastically down.

Persistent Fiscal Deficits and Political Economy Transitions in India

The Indian economy has been suffering from a persistent fiscal deficit for the last four decades. With the transition to coalition politics in the 1980s, the country’s political economy characteristics have significantly affected its fiscal policies and outcomes, but this has received scant attention in the literature. The impact of macroeconomic and political economy factors on India’s fiscal deficit between 1978–79 and 2016–17—a period when the country witnessed simultaneous economic and political structural transformations—has been investigated in this study. It finds evidence of a close link between electoral cycles and fiscal populism and between government fragmentation and fiscal profligacy. Additionally, it finds that a strong opposition does not necessarily mitigate the fiscal populism of incumbent governments.

How Has India Dealt With Global Economic Recession in the Past?

Whether or not the Indian economy is going into recession remains debatable. But without a correct diagnosis, measures to counteract the problems will be ineffective.

Reviving Fiscal Activism

Fiscal Consolidation, Budget Deficits and the Macro Economy by Lekha S Chakraborty, Sage, 2016; pp xix +197, 750.

 

In a Macroeconomic Bind

Despite it being the government’s last full budget before the general elections in 2019, the finance minister, constrained by his self-imposed fiscal deficit targets, settled for rhetoric and promises that were not backed with allocations. This frozen macroeconomic policy has foreclosed all options to adopt proactive measures that could make a difference to those who need support. Yet, the financial interests he wants to impress also seem disappointed.

Should States Target a 3% Fiscal Deficit?

India’s current fiscal rules target a 3% fiscal deficit for the central and state governments. Though states have largely adhered to their borrowing ceilings, subnational debt is proliferating. A significant reduction in subnational borrowing is required to stabilise the states’ debt around the desired level of 20% of gross domestic product. Symmetry should not be forced on central and state borrowing flows, given their widely divergent levels of debt stocks.

State Level Debt–Deficit Dynamics

An analysis of the debt and deficit of states based on the budget estimates of 2016–17 shows that almost half of them have a fiscal deficit target higher than the limit set in the Fiscal Responsibility and Budget Management Act. These states need to focus on the quality of expenditure and elimination of revenue deficit as per the framework proposed by the Fourteenth Finance Commission to enhance state-level capital spending.

Credibility and Portability?

Examining the Centralised Online Real-time Electronic Public Distribution System reforms introduced by the Government of Chhattisgarh to understand the processes and conditions under which such reforms strengthen accountability and affect the delivery of public services, it is found that while earlier reforms have been successful, the contribution of CORE PDS has been useful but limited. A significant finding was that technological fixes for social protection programmes are only feasible insofar as they work within the political logic of the context in question. CORE PDS reforms could not address the issues of power imbalances between shop owners and cardholders which continue to shape interactions between them. Introducing transparency, accountability and quasi-market reforms in this context offered limited possibilities in what they could achieve.

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