The Union Budget 2023-24 provides a good opportunity to take stock of the fiscal situation as this is the first ‘normal’ budget after 2018-19.
- The 2019-20 year witnessed the NBFC crisis; 2020-21 saw the pandemic and 2021-22 the recovery, while 2022-23 had a global turmoil in the wake of the Russian invasion of Ukraine.
The comparison with FY 2018-29 helps us come to the following conclusions:
Implications on Fiscal Performance
- Decline in capital investments: Despite increase in the centre’s capital spending, investment by the overall public sector has actually declined because the states (especially public sector undertakings) have reduced their spending.
- Other parameters: The centre’s structural deficit has grown, overall debt has risen to 85 per cent of GDP, and interest obligations have increased considerably.
- The centre’s fiscal consolidation strategy relies heavily on centralisation, which has both limits and limitations.
- Limits: Even in a good scenario, there is only restricted consolidation that can be achieved in this fashion. The centre has to look at other ways to reduce the deficit to its target of 4.5 per cent of GDP.
- Limitations: Centralisation may not lead to improved efficiency, but would result in a redistribution of resources from the states to the centre.
- States would either be forced to reduce the services to their people or would need to increase their borrowing, leading to further degradation of their fiscal position.