Tighten that fisc
An infrastructure spending drop-off might hit growth, for example, while welfare cutbacks could prove premature. Yet, economic stability would require New Delhi to compress its fiscal gap faster than the finance ministry’s glide path would have it do
PremiumInflation makes it difficult to compare revenue and expenditure figures across time, but some ratios are always useful. In Union budget making, the fiscal deficit, expressed as a proportion of gross domestic product (GDP), is an important must-watch. For 2023-24, Mint reported on Monday that India’s government may be eyeing a deficit of 5.7-5.8% of GDP, lower than the current year’s target of 6.4% but still almost double what fiscal hawks consider prudent. The need for covid relief had made enlargement necessary, and too sharp a reversal could prove unsettling. An infrastructure spending drop-off might hit growth, for example, while welfare cutbacks could prove premature. Yet, economic stability would require New Delhi to compress its fiscal gap faster than the finance ministry’s glide path would have it do. That trend line, with the fisc foreseen at 4.5% of GDP in 2025-26, seems oblivious to inflationary pressures brought about by sustained outlays of this size without tax and other inflows to pay for them. For general price levels to get under the Indian central bank’s control, budgets must return to normalcy. Sure, retail inflation hasn’t hit double digits, but it’s still too high for comfort.
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