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Budget Must Increase Spending and Investments to Tide India Over Trying Times

For a nation battered by Covid-19, this is the year of optimism. The roll-out of the vaccines Covishield and Covaxin this year brings abundant hope in people who struggled for livelihoods in the summer of the lockdown. The early economic indicators (Table 1) for Q3-FY21 suggest that our economy has made a smart recovery from the historic contraction in the aftermath of the lockdown and has moved into a positive growth cycle. Against this backdrop, finance minister Nirmala Sitharaman has undertaken an onerous task of presenting a “never before” like Budget on February 1, 2021.

KEY ECONOMIC CHALLENGES

An obvious challenge for the FM is to match the numbers. The exuberant revenue projections of Budget estimates 2020-21 have been battered. With the shrinkage in the economy, government tax collections are down, but expenditure remains the same, pushing up the fiscal deficit (Table 2). The estimated fiscal deficit till November 2020 was 5.6% of GDP, which is expected to touch 6.8% for the full fiscal year. Higher borrowings also push the interest payment upwards to 43% of total government revenues for FY20-21.

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