OVERSPENDING FOR GROWTH

The Budget reveals the government is willing to stretch its finances by going off the fiscal glide path

- DIPAK MONDAL

The government has bitten the fiscal bullet and taken the option of diverging from the fiscal deficit glide path in favour of stimulating growth. The Budget, presented by Finance Minister Nirmala Sitharaman, has taken the 0.5 per cent escape route provided by the Fiscal Responsibility and Budget Management (FRBM) Act and relaxed the fiscal deficit — the amount by which its expenses exceed receipts — target from 3.3 per cent to 3.8 per cent of GDP in 2019/20. This without taking into account the ₹1.72 lakh crore raised through extra-budgetary resources. If these are added, the fiscal deficit goes up to 4.6 per cent. The government plans to raise ₹1.86 lakh crore through extra-budgetary resources in the next financial year.

Finance Minister Nirmala Sitharaman, in her post-Budget media briefing, explained why the government had to deviate from the path of fiscal prudence: “We had announced in July (Budget) a target of 3.3 per cent (fiscal deficit), but subsequent to that, because of the challenge we faced (in the economy), we wanted to put more money in hands of people to improve consumption demand and public investment as private investments were not happening.” She further said that due to various reasons — natural calamities, compliance issues and other unexplained reasons — GST collections were coming down. “On the one hand, your revenue could not be pressed further and on the other there was a clear demand for public spending. It was obvious that we had to go on spending. So, without violating the FRBM Act, we had to seek the escape clause (going off the fiscal glide path by up to 0.5 per cent).”