4 choices, no free lunch: Budget attempted a balancing act in a complex domestic & global macro environment

By Sajjid Z Chinoy

Arguably, this was a more challenging budget to present than last year. How so? Even though the pandemic’s economic hit was larger this time last year, the intellectual consensus was clear: fiscal policy should remain very supportive and accommodative central banks should mitigate the resultant fallout on interest rates.

No such consensus exists this year. On the one hand, India still remains below the pre-pandemic path and with private investment sluggish, the economy still needs fiscal support to drive growth and employment. On the other hand, the global backdrop has become much more precarious. The Fed is set to deliver a series of rate hikes in 2022 (already spilling over into Indian bond yields) and crude prices are close to $90. In addition, public debt/GDP has climbed towards 90% and the current account deficit has widened past 2% of GDP. All these would argue for more fiscal caution.

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