Twin buffers

FISCAL RECTITUDE AND STEPS TO SUSTAIN GROWTH ARE AT PAR FOR AN UNCERTAIN WORLD

- DHARMAKIRTI JOSHI PANKHURI TANDON

MARCH OF announcements generally makes February policy-heavy. The Union Budget and monetary policy review rub elbows within a week of each other, on a stage first occupied by the Economic Survey. This year, we also have two critical data announcements—a complete overhaul of the Consumer Price Index (CPI) and gross domestic product (GDP) series.

The revisions involve rebasing the data to a more recent year, adopting new methodologies, and incorporating fresh data sets. Such changes can alter the measured size of the economy, its growth speed, and inflation numbers. Hence, the Budget should be assessed keeping in mind these forthcoming developments.

This fiscal’s budget was framed under an unusual mix of circumstances: India’s standout growth performance amid a challenging global environment marked by heightened uncertainty and risks stemming from tariff disputes and geopolitical conundrums. Against this milieu, growth was supported by directed fiscal measures and monetary easing. While real GDP growth remains strong, nominal growth—crucial for tax collections and corporate performance—is estimated to be 210 basis points (bps) below the budgetary target of 10.1 % for the fiscal. Nevertheless, the government managed the trade-offs well and achieved the fiscal deficit target set out in the Budget.

Fiscal marksmanship has been a hallmark of the government’s budgeting, with the pandemic year as the sole exception. In the post-pandemic period, the government engineered a sustained reduction in fiscal deficit in line with its guidance. The latest Budget targets a fiscal deficit of 4.3% of GDP and assumes 10% nominal GDP growth for the coming fiscal—higher than the 8% estimated for the current fiscal. Higher nominal growth expands the tax base and should improve fiscal arithmetic.