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Union Finance Minister Nirmala Sitharaman is faced with the challenge of maintaining the critical balance between fast track growth and fiscal consolidation, before presenting the Union budget for the year 2023-24. At the same time, Sitharaman will also have to keep electoral considerations in mind as this is going to be the last full-year budget of the present government, before facing the electorate for another term in May, 2024. A difficult task indeed considering the prevailing global economic environment, which has been going through an unprecedented crisis for quite some time now. The International Monetary Forum (IMF) has warned that one-third of the world including half of Europe may witness recession by the middle of the year. It has also claimed that the world economy will grow only by 2.7 per cent in 2023 fiscal, which was six per cent in 2021. Clearly, the COVID-19 pandemic, ongoing Russia-Ukraine war and constant threat of China going into the grip of another pandemic are affecting the health of the global economy is taking its toll. On its part, as the fifth largest economy of the world India cannot escape unhurt from such developments. So taking the Indian economy forward whilst shielding it from the prevailing worldwide economic gloom will definitely be a difficult task.
There is no denying that the Indian economy has made a remarkable turnaround after contracting by nearly 25 per cent during the initial stages of the pandemic. From such a hopeless situation, the Indian economy is now expected to register seven per cent growth in the current fiscal. This is no mean achievement considering the fact that like all other nations of the world, India too had to face challenges strong enough to derail the country’s economy. Various reasons like good policies, effective management of the economy among others can be attributed as the reasons behind India’s success story. But the major contribution was made by the decision to loosen purse strings for various infrastructure projects, which in turn provided enough money for the people to fend for themselves. In other words, enhancement of public expenditure has largely helped India to become the fastest growing economy of the world, even amidst the crises. It is hoped that the thrust on creating infrastructural facilities will continue in this year’s budget too.
But such a step can be counter-productive as it increases the fiscal deficit. India is committed to bringing down the fiscal deficit to 4.5 per cent of GDP by 2025. So, at a certain point public spending would have to be curtailed to achieve the target, although such a step is not conducive in the present situation. In order to overcome the difficulty, the best way is to withdraw the sops offered to private industries to counteract the jolt delivered by the outbreak of the pandemic, as these steps have failed to attract sufficient investments to strengthen the economy. Bringing back the corporate tax rate to the pre-pandemic level will not only allow the government to continue with its welfare measures, but also will help to keep the fiscal deficit in check.