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Economic Survey stresses on expansionary fiscal policy, GDP boost

The Economic Survey tabled by Finance Minister Nirmala Sitharaman in Parliament on Friday, January 29, gives some hints. It favours a "counter-cyclical expansionary fiscal policy"

Ashutosh Kumar | January 29, 2021 | Updated 20:21 IST
Economic Survey stresses on expansionary fiscal policy, GDP boost

In the run-up to the budget, one of the predominant deliberations among those tracking government policy had been whether India should focus on fiscal consolidation or loosen the purse strings to revive the economy deeply impacted due to the COVID-19 pandemic.  

The Economic Survey tabled by Finance Minister Nirmala Sitharaman in Parliament on Friday, January 29, gives some hints. It favours a "counter-cyclical expansionary fiscal policy".  

"In view of the shock on the fiscal system induced by COVID-19, the important concern, therefore, is whether the medium-term fiscal policy strategy should focus on growth or fiscal restraint," the survey observes.  

It goes on to add that adoption of countercyclical expansionary fiscal policy in times of crisis is expected to boost the growth in GDP both directly and indirectly through multiplier effects on private consumption expenditure and private investment.  

"Higher GDP growth would thereby facilitate buoyant revenue collection in the medium term, and thereby enable a sustainable fiscal path," the survey adds.  

In the chapter titled Fiscal Developments, the survey observes that a deviation from the path of fiscal consolidation may be transient as growth comes back.  

"Deviation from the path of fiscal consolidation may be transient as the fiscal indicators rebound with the recovery in the economy. Thus, focusing on boosting GDP growth would be pivotal for enabling a sustainable fiscal path in the medium term," the survey notes.

In the current financial year, the government has targeted a fiscal deficit of 3.5 per cent. This is, however, likely to widen, according to estimates.

"Although there was no massive fiscal stimulus in the calendar year 2020 -- various estimates put it between 1.5% and 2.5% of GDP, of which 0.7% of GDP was on account of food subsidies, which is unlikely to affect the fiscal balance -- a significant shortfall in receipts likely led to the doubling of the fiscal deficit to 7% of GDP in FY21 (from the budgeted 3.5%)," said brokerage house Motilal Oswal in its report - Ecoscope.

In the wake of the COVID-19 pandemic, the government enhanced its gross market borrowing target for the current financial year to Rs 12 lakh crore against the budget target of Rs 7.8 lakh crore. 

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