A+| A| A-

Fiscal Consolidation Ex Post the ‘Escape Clause’

Launching an “excessive deficit procedure” in India is inevitable for growth revival. This is crucial, especially when there is considerable ambiguity about why the “escape clause” was invoked in the Union Budget 2020: whether to meet the shortfall in tax revenue emanating from the unanticipated fiscal outcomes of structural reforms, or to boost the capital formation in the economy.


The World Economic Outlook (WEO) 2020 released by the International Monetary Fund (IMF) has reduced India’s growth forecast to 4.8%, a reduction of 1.3% within three months. The WEO also indicated that the growth slowdown in an emerging economy like India has pushed down the global growth forecast by “0.1%” (IMF 2020). However, the Union Budget 2020 has done little to stimulate the economic growth, and the Ministry of Finance is in constant denial to accept that the economic slowdown in India is a “drag” on the world economy. Beyond the point of the “synchronised slowdown” argument—that the global growth downturn is also affecting India’s growth rate—the Union Budget 2020 has failed to use the “budget” as a potential fiscal tool to trigger the economy.

The only move by Finance Minister Nirmala Sitharaman, with regard to fiscal consolidation, was to invoke the “escape clause” of the new Fiscal Responsibility and Budget Management (FRBM) Act, 2018. However, there remains a genuine confusion as to whether invoking the “escape clause” to deviate from the fiscal consolidation path is in response to the shortage in tax revenue, emanating from the unanticipated outcome of structural fiscal policies undertaken, or whether it is for increasing capital (infrastructure) expenditure.

To read the full text Login

Get instant access

New 3 Month Subscription
to Digital Archives at

₹826for India

$50for overseas users

Updated On : 2nd Mar, 2020


(-) Hide

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.

The Union Budget for 2020–21 emphasised the need to restrict imports. A number of measures were proposed to realise this objective. These include...

The 2020 Union Budget has announced several small steps that could give some fillip to the financial sector in the short run, but the lack of a...

Though the 16-point action plan for agriculture laid down in the 2020 Union Budget continues prioritising subsidies and safety nets over...

The Union Budget of 2020 is conspicuous by its non-recognition of the ongoing and widely discussed slowdown of the economy, let alone its impact...

There were high expectations from the budget on the changes in the tax system to provide stimulus to the beleaguered economy. However, fiscal...

The 2020 Union Budget has failed to provide any fiscal stimulus based upon the assumption that there is no fiscal space for providing growth...

Back to Top