Govt may have to continue with an expansionary fiscal stance

New Delhi, Jan 29 : Even at the cost of further enlarging the country’s fiscal deficit, the Economy Survey 2020-21 has fully backed the government’s expansionary policies, suggesting that this is required even in the future in order to sustain the recovery in aggregate demand.
The suggestion indicates that the path to fiscal consolidation will be long drawn and the government may continue to stretch its budget further to enlarge spending aimed at generating demand in the economy that holds the key to put the economy back on the growth path.
“The fiscal policy response of the government has been a combination of demand and supply side policies under the ambit of ‘Aatmanirbhar Bharat’ to cushion against the pandemic shock, and subsequently fuel the economic recovery. 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,” said the survey which was presented in the Parliament on Friday.
The recommendations came on a day when the country’s fiscal deficit touched 145 per cent of the budget target at Rs 11.5 lakh crore. With fiscal slippage getting further enlarged in the Covid impacted year, FY21 is estimated to end the year with a fiscal deficit of 7 to 7.5 per cent of GDP or Rs 14.5 lakh crore.
This high level of deficit would mean that the government would have to weight heavily on a revival of the economy to get some increase in revenue collections.
Also, the government’s disinvestment and privatisation plan would be tested in FY22.