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The Economic Survey tabled in Parliament on Tuesday has rightly emphasized the need for fiscal prudence in India even as there is increasing talk of greater fiscal activism in the developed world.
The Narendra Modi government has done well by following the fiscal consolidation path. But the next year will be another difficult year for fiscal management as the government will need to push capital expenditure.
There are at least two issues that will affect government finances.
First, the fiscal gains from lower oil prices will wane. Second, if the revenue growth is less than 14%, the Union government will have to compensate the state governments for the shortfall after the implementation of the goods and services tax.
It will be interesting to see on Wednesday how the government intends to deal with this potential problem. The other important factor to look forward to in the budget will be the estimate of fiscal gains from the currency swap and how the government intends to use it.