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

Author

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  • Chakraborty, Lekha

    (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.

Suggested Citation

  • Chakraborty, Lekha, 2021. "Macroeconomic Framework of Union Budget 2021-22: Reconsidering the Fiscal Rules," Working Papers 21/328, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:21/328
    Note: Working Paper 328, 2021
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    File URL: https://www.nipfp.org.in/media/medialibrary/2021/03/WP_328_2020.pdf
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    References listed on IDEAS

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    1. Badola, Shivani & Mukherjee, Sacchidananda, 2020. "Factors Influencing Access to Formal Credit of Unincorporated Enterprises in India: Analysis of NSSO's Unit-level Data," Working Papers 20/326, National Institute of Public Finance and Policy.
    2. Olivier Blanchard, 2019. "Public Debt and Low Interest Rates," American Economic Review, American Economic Association, vol. 109(4), pages 1197-1229, April.
    3. Mukherjee, Sacchidananda, 2020. "Pandemic and GST Revenue: An Assessment for Union and States," Working Papers 20/327, National Institute of Public Finance and Policy.
    4. Olivier J Blanchard, 2019. "Public Debt: Fiscal and Welfare Costs in a Time of Low Interest Rates," Policy Briefs PB19-2, Peterson Institute for International Economics.
    5. Patnaik, Ila & Pandey, Radhika, 2020. "Four years of the inflation targeting framework," Working Papers 20/325, National Institute of Public Finance and Policy.
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    Cited by:

    1. Anshuman Kamila, 2022. "Fiscal dominance in India: an empirical estimation," Indian Economic Review, Springer, vol. 57(1), pages 113-132, June.
    2. Kamila, Anshuman, 2021. "Fiscal dominance in India: An empirical estimation," Working Papers 21/359, National Institute of Public Finance and Policy.
    3. Anshuman Kamila, 2021. "Fiscal dominance in India: Through the windshield and the rearview mirror," IEG Working Papers 429, Institute of Economic Growth.

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