Unrealistic revenue projections leading to strong expenditure compression is primarily responsible for India’s growth deceleration. Growth will decelerate further without a programme of deep fiscal adjustment. How a fiscal space, amounting to over 6% of the gross domestic product, can be freed through such an adjustment programme is demonstrated. This space can be potentially used for an inclusive public expenditure-led strategy for reviving growth.
The 2019–20 budget indicates a marginal overshooting of the 2018–19 fiscal deficit to 3.4% of the gross domestic product (GDP) compared to the target of 3.3%, which has been reset as the new target for 2019–20. The new target for revenue deficit is set at 2.3% of GDP, and primary deficit, that is, the deficit net of interest spending for servicing past debt, is set to decline from 0.4% of GDP in 2016–17 and 0.3% in 2018–19 to 0.2% in 2019–20 (Table 1, p 33). This gives the impression of a more or less smooth gliding path of fiscal consolidation towards the final fiscal deficit target of 3%, as recommended by the N K Singh (Fiscal Responsibility and Budget Management Review) Committee.
Expenditure Compression
Comments
EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.