Striking a Balance: Growth and Stability

Striking a Balance: Growth and Stability

Balancing Growth with Stability

#GS 03 Budget, Economy, Infrastructure

For Mains

Concerns with the growth rate

  • 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.

Allocations in Budget

  • 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.

Source “A Budget that signals growth with stability

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