Striking a Balance: Growth and Stability

Balancing Growth with Stability

#GS 03 Budget, Economy, Infrastructure

Even though the economy has staged a recovery and surpassed the pre-pandemic income level, the growth rate remains below the pre-pandemic trend at less than 7%.
However, inflation remains beyond the upper tolerance limit and aggregate fiscal deficit (Centre and States) still in the range of 9% to 10% of GDP which means that in order to ensure macroeconomic stability we need to continue fiscal consolidation.
Since, interest payments accounts for 40% of the net revenues of the Centre, they have to accelerate growth by increasing public investment while containing the fiscal deficit.
The multiplier effect of capital expenditure is estimated by the Reserve Bank of India to be 1.2 which should help revive the sagging investment climate.

The budgeted allocation to capital expenditure is increased from 2.7% of GDP to 3.3% or from ₹7.3 lakh crore to ₹10 lakh crore.
This can cause a significant ‘crowding in’ effect, which should help to increase private capital expenditures as well.
Food and fertilizer subsidies saw a a sharp increase by ₹2 lakh crore.
India wants to bring down the fiscal deficit to 4.5% by 2025-26 which means a reduction by 1.9 percentage points in the next three years.
The budgeted estimate in revenue expenditures for the year 2023-24 is just 1.2% higher than the revised estimate for the current financial year.
The fertilizer subsidy is expected to be reduced from ₹2.87 lakh crore to ₹1.87 lakh crore; a reduction by ₹90,000 crore.
Similarly, the fertilizer subsidy is expected to be reduced by ₹50,000 primarily due to the fall in fertilizer prices.
Finally allocation to centrally sponsored schemes is expected to be cut down marginally by about ₹20,000 crore, while the overall current transfer to States is to be kept constant at 3.3%-3.4% of GDP.

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