Importance of fiscal consolidation cannot be overstated in the current global economic context. A lower fiscal deficit reduces GoI’s borrowing needs, potentially lowering interest rates and creating more room for private sector investment. It also enhances India’s credibility in international financial markets, potentially leading to improved sovereign credit ratings and attracting more foreign investment.
It also prevents a spillover on to the current account, which could put pressure on the currency. Experience suggests that fiscal stability is critical for sustained growth and crisis prevention, especially for emerging economies.
A key component of the fiscal consolidation strategy is the focus on capital expenditure. The budget proposes a significant allocation towards capital spending to sustain infrastructure development momentum. This emphasis on capex is crucial, as it has a multiplier effect on the economy, potentially leading to higher growth rates and, consequently, higher tax revenues in the future. By prioritising productive investments over current expenditures, GoI aims to create a virtuous cycle of growth and fiscal improvement.The budget also recognises the importance of state governments in the overall fiscal consolidation effort. It proposes enhanced public infrastructure investments through support to states for capital spending. This approach not only helps in improving the overall infrastructure of the country but also ensures that benefits of fiscal consolidation are spread across different levels of government.GoI’s fiscal consolidation efforts are also closely tied to its broader economic reforms agenda. By creating fiscal space, GoI can invest in critical areas such as digital infrastructure, RE and skill development, which are essential for India’s long-term economic competitiveness.On the whole, the budget presents a well-thought-out strategy for fiscal consolidation that balances multiple objectives. It aims to reduce fiscal deficit and government debt, while maintaining robust public investment in key areas. The flexible approach adopted in the budget recognises uncertainties in the global economic environment and allows for adaptability in policy response.
As India continues on its path to becoming a developed nation, prudent fiscal management, as outlined in this budget, will play a crucial role in achieving that goal.