Inclusive Fiscal Adjustment for Reviving Growth

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.