Macroeconomic Framework of Union Budget 2021-22: Reconsidering the Fiscal Rules

Lekha Chakraborty ()
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Lekha Chakraborty: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: Extraordinary times require extraordinary policy responses. Against the backdrop of macroeconomic uncertainty due to the CoVID-19 pandemic, the union finance minister has announced a high fiscal deficit of 9.5% of gross domestic product (GDP) in revised estimates (RE) 2020–21. This is against the pegged deficit of 3.5% in budget estimates (BE) 2020–21. Simultaneously, the finance minister has also announced an excessive deficit procedure to bring down the high fiscal deficit to 4.5% of the GDP by financial year (FY) 2026. High deficit has no fiscal costs if it can be substantiated with increased public investment or “output gap” reduction. When the monetary policy stance has limitations in triggering growth through liquidity infusion and the status quo policy rates, “fiscal dominance” is crucial for sustained growth recovery.

Pages: 13
Date: 2021-03
New Economics Papers: this item is included in nep-mac
Note: Working Paper 328, 2021
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Citations: View citations in EconPapers (3)

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