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

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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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    References listed on IDEAS

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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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