Massive Capital Expenditure, Modest Fiscal Consolidation, and Cut in Pillars of Social Safety Net

The 2023–24 budget is the fifth and final full budget of Finance Minister Nirmala Seetharaman.¹ It is interesting to compare her budgets across these five years to see what patterns, if any, can be discerned as hallmarks of her fiscal management. The difficulty in doing this is that the past five years have been exceptionally volatile. The budgets have had to respond to repeated shocks. Thus, one common feature of these budgets is that they have been anything but normal. That has to be kept in mind while seeking patterns in them.

When the COVID-19 pandemic struck, the world economy contracted by 3%, while the advanced economies contracted by as much as 4.4%. Global econo­mic activity had barely started recovering in 2022 when the outbreak of the Ukraine war plunged the global economy in another crisis. Advanced country growth came in at only 2.4%, this time combined with unprecedented high inflation at 7.2%. Inflation in the emerging markets and developing countries group was even higher at 9.9%. Stagflation, low growth along with high inflation, was partly the consequence of supply disruptions caused by the Ukraine war. This supply-side driver was combined with exceptional quantitative easing and huge deficits in the advanced countries to reverse the contraction triggered by the pandemic, followed by the sharp switch to rising policy rates and monetary tightening in late 2022 to contain high inflation in the advanced countries. These global conditions have had an adverse impact on domestic growth and inflation in India as well as external capital flows.