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 the fiscal deficit and the need to avoid pre-election Budget.
News: The Finance Ministry has started preparing the Union Budget for 2023-24. It would be presented on February 1, 2023.
It is expected that government should not make 2023 a pre-election budget as pre-election budget includes spending to attract voters. This spending further increases the burden on the government.
Instead, the budget for 2023 should focus on fiscal consolidations rather than increasing the deficit.
Why is there a need for fiscal consolidation over the pre-election budget?
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 estimates for 2021-22, the combined fiscal deficits of 18 major states would be about 3.4 per cent and are expected to decline to only 3.3 per cent in 2022-23.
Therefore, achieving a 3 per cent fiscal deficit target for the states in 2023-24 looks difficult.
The Centre has also brought down its fiscal deficit from 9.2 per cent of gross domestic product (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.
Therefore, reducing its fiscal deficit to the set target of 4.5 per cent would be difficult if the 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, and check the rising inflation along with the depletion of forex reserves.
Therefore, ensuring financial stability through fiscal consolidation should be the goal rather than achieving higher growth through increased spending.