In the year 2019-20, Indian economy was already on its trough and the incidence of corona-virus pandemic in 2020-21 has further deteriorated the economic condition, limiting the fiscal space of the government. As need of the hour was to take some supportive measures to handle such unusual situation, therefore, various monetary and fiscal measures were taken by the government to overcome the impact of the pandemic. This resulted in overshooting of the fiscal deficit target set under the FRBM Act and made the government to revise its fiscal deficit target of 3.5 per cent of GDP in 2020-21 (BE) 9.5 per cent in 2020-21 (RE) and further it is projected as 6.8 per cent of GDP for 2021-22 (BE). After an estimated 7.7 per cent pandemic-driven contraction in 2020-21, India’s real GDP is projected to record growth of 11.0 percent in 2021-22 and nominal GDP by 15.4 per cent. The government has expected to generate 23 per cent more revenue and has budgeted to increase its spending by only 0.95 per cent in FY22 as compared to FY21 (RE). In order to deal with pandemic situation, the economists have suggested more active, counter-cyclical fiscal policy to enable growth during economic downturn. However, due to lack of revenue sources it also becomes important to strategize the path for fiscal consolidation for the ensuing years.
Animesh Pareek (Sat,) studied this question.