The Indian government may need to continue with an expansionary fiscal stance in order to sustain the recovery in aggregate demand, said the Economic Survey for 2020-21.
The soon-to-conclude financial year is likely to see a fiscal slippage, the survey, released ahead of the Union Budget presentation on Feb.1, said, adding the expenditure support provided during the year will impart the required momentum to medium-term growth.
“Going forward, in order to sustain the recovery in aggregate demand, it is expected that the government may have to continue with an expansionary fiscal stance,” the survey said. “The calibrated approach adopted by India allows space for maintaining a fiscal impulse the coming year.”
The central government's fiscal deficit for FY21 is seen at 6.5-7.5% compared to the budget estimate of 3.5%. Economists are expecting the government to target a fiscal deficit of 5.5-5.6% for FY22.
The growth recovery would facilitate buoyant revenue collections in the medium term, and thereby enable a sustainable fiscal path. Moreover, the release of the Fifteenth Finance Commission report in the coming months, will lay down the road map for the long-term fiscal policy strategy for both the centre and the states.Economic Survey 2020-21
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Expenditure Pick-Up
The Economic Survey pointed to the recent pick-up in expenditure, with capital expenditure rising sharply in recent months.
- The capital expenditure for April to December 2020, based on flash estimates, stood at Rs 3.17 lakh crore, 24% higher than last year.
- The total expenditure stands at Rs 23.4 lakh crore during April to December 2020, up 11% year-on-year.
- Total expenditure in October rose 9.5%, 48.3% in November and 50.2% in December.
- Capital expenditure in October rose 129.5% in October, 248.5% in November and 81.9% in December.
It can clearly be seen that by timing the expenditure push, especially the capital expenditure, after the reduction in health-related curbs, the growth “bang” for the fiscal buck has been maximised.Economic Survey
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