$5-Trillion: From Ambition To Action

If growth and private investments take off, fiscal deficit should come under control, reducing the need for the government to borrow

- Rajiv Memani

AS THE FASTEST GROWING MAJOR ECONOMY, India is slated to drive global growth. The poise with which India managed the pandemic impact and navigated from a negative growth in the first two quarters of FY21 to positive growth in the next four consecutive quarters deserves praise.

As the Finance Minister presents the Union Budget, she will have the complex challenge of balancing this pace of growth with keeping the fiscal deficit in check, against the backdrop of the likely impact of the new Covid-19 wave and rising inflation. For this Budget, choosing growth to aid recovery will be advisable—if growth and private investments take off, fiscal deficit will gradually come under control with lesser need for the government to borrow.

I make a case for a more calibrated return to fiscal consolidation as a more suited policy at this juncture for the country.

Fiscal Policy: Key to Growth

The latest MOSPI estimates indicate that India’s real GDP growth for FY22 is expected to be at 9.2 per cent. At this growth, India’s output in absolute terms is likely to be about ₹147.5 lakh crore in FY22, a mere 1.3 per cent growth over ₹145.7 lakh crore achieved in FY20. The impact of the Omicron wave may pose some hurdles for this growth. With inflation gathering momentum, RBI may be constrained to increase or maintain the current repo rate. Thus, monetary policy may have a limited scope for supporting growth. In this milieu, an impetus on investments and capital expenditure through a supportive fiscal policy is the need of the hour to achieve India’s ambition of a $5-trillion economy.

Fiscal Deficit