TIGHTROPE WALK

With limited resources on one side and burgeoning expenditure on the other, the Centre had to be realistic, bring in transparency and alter the spending mix

- M.G. Arun and Shwweta Punj

THE HAVOC WREAKED BY COVID-19 CALLED FOR EXCEPTIONAL policy measures, and at least the “never-before” rhetoric before the Union budget was in step with the high expectations. The hope was that the government would spend big, not just on healthcare, the most immediate and urgent priority, but also on infrastructure, as the main engine of economic growth and employment. Sectors that have been hit the worst, such as most services, manufacturers of ‘non-essential goods’ and MSMEs, to name just a few, were also looking for succour.

But the high-decibel announcements and headlines notwithstanding, what comes out on a close reading of the budget is an admission by the government of the severe revenue constraints it faces. Constraints that make spending difficult without resorting to high borrowings and non-tax modes of revenues such as disinvestment. In that sense, it is a realistic budget that acknowledges the meagre resources currently in hand. Also, in a departure from recent behavior, it has kept the big headline numbers—such as the GDP and the fiscal deficit— honest in this Budget.

Covid-19 has impacted not just lives and livelihoods but also thrown all fiscal calculations into disarray. As revenues slipped and unforeseen expenses ballooned, the fiscal deficit (government expenditure minus revenues) slipped badly, growing almost three times to around 9.5 per cent of GDP, from 3.5 per cent budgeted earlier. Revenues under all three heads—tax, non-tax and non-debt capital—fell short in fiscal 202021 compared to budgeted targets. The government met this shortfall through massive borrowings from the market and other sources. Borrowings more than doubled from Rs 7.96 lakh crore (budgeted) to Rs 18.5 lakh crore (revised) in FY21.