Prudence in the Time of Turmoil

Given the strong macro headwinds, the budget's promise of keeping the fiscal deficit low is appreciable. Smaller companies need easier norms and investors need more consistent policies to spur the economy

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India's political economy is peculiar, in that we have only seven income taxpayers for every 100 voters. But this time, the taxpayer got some attention and relief.

India cannot ignore the precarious nature of its fiscal situation. Interest on the debt itself consumes 49 percent of all tax revenues of the Union government. The debt-to-GDP ratio has to decline. The high borrowing requirement, which will be nearly ₹15 lakh crore this year, tends to put upward pressure on interest rates and crowds out private investment.

Hopefully, with a lower fiscal deficit next year, softening inflation and injected liquidity in the banking system, the Reserve Bank can do its bit by reducing interest rates at its next meeting.