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Source: The post is based on an article “Not a pre-election Budget, please!” published in Business Standard on 26th October 2022.
Syllabus: GS 3 – Economic Development
Relevance: measures to tackle fiscal deficit
News: The finance Ministry has started preparing the Union Budget for 2023-24. It would be presented on February 1, 2023.
This budget will be a last full Budget of the present government in its second term. Therefore, the budget is expected to be a pre-election budget. It means it may include promises for spending to attract voters.
However, government should not make it a pre-election budget as these spending further increases burden on the government.
Instead, the budget of 2023 should focus on fiscal consolidation.
Why is there a need for fiscal consolidation?
The Union Finance Minister had set for the Centre a fiscal reduction plan to be achieved over a longer period.
Fifteenth Finance Commission has also recommended states to reduce its fiscal deficit.
Accordingly, the Centre’s fiscal deficit is set to be brought down to 4.5 per cent by 2025-26 while the states should bring theirs down to 3 per cent by 2023-24.
As per revised estimated for 2021-22, the combined fiscal deficits of 18 major states would be about 3.4 per cent and is expected to decline to only 3.3 per cent in 2022-23.
Therefore, achieving 3 per cent fiscal deficit target for the states in 2023-24 looks difficult.
The Centre has brought down its fiscal deficit from 9.2 per cent of GDP in 2020-21 to 6.7 per cent in 2021-22 and is likely to bring it down to 6.4 per cent in 2022-23. However, reducing its fiscal deficit to the set target of 4.5 per cent would be difficult if finance ministry treats the budget for 2023-24 as a pre-election exercise.
Further, fiscal consolidation is also necessary to face the emerging global economic challenges, check the rising inflation along with depletion of forex reserves.
Therefore, ensuring financial stability through fiscal consolidation should be the goal rather than achieving higher growth through increased spending.
