Critics have tried to cast aspersions regarding the recently published fiscal deficit figures after the Union Finance Minister Nirmala Sitharaman presented the budget for FY21. They, however, have missed a crucial point that in reality, the budget is expansionary in nature. The Government has undertaken a 0.85% extra financing via off-budget manoeuvers, especially with regards to financing subsidy for the Food Corporation of India. The combined fiscal deficit, therefore for FY20 comes about 4.6%. A fundamental purpose of any Budget is to present an honest accounting of the past year and realistic projections for the year ahead. And, I’m elated that the Finance Minister took that significant step of presenting a statement on off-budget financing.
The economists who were lambasting the Government for giving precedence to fiscal consolidation over the growth stimulus in a slumping economy have missed this crucial aspect. Off budget financing, no doubt reflects the inherent weakness of the economy and a major liability, but given the economic situation, this leeway is understandable. The question, however, still lingers as to what percent of this borrowing shall be utilized for the capital investments, the mainstay of the Indian economy.
Additionally, It’s heartening that the 15th Finance Commission has recommended the elimination of off-budget financing. Therefore, an opportunity has emerged for the Government to rev up its finances by streamlining the GST and Direct Tax structure along with other structural reforms so that no need arises in the future to take recourse towards such financing. As the green shoots have started appearing in the economy, it’s essential that inflation is controlled as early as possible, so that real benefits start accruing from this budget.