Indian Economic challenges

  • IASbaba
  • June 11, 2021
  • 0
UPSC Articles
Print Friendly, PDF & Email



  • GS-2: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 

Indian Economic challenges

Context: According to NSO’s provisional estimates for 2020-21, the annual contraction in real GDP turned out to be 7.3 per cent, an improvement over the earlier estimate of 8 per cent. 

Economic Projections 

  • A real GDP growth of 7.8 per cent would be required in 2021-22 to reach back to 2019-20 real GDP levels.
  • It is estimated that with suitable policy interventions, a 9 per cent real GDP growth may still be feasible if the lockdowns wind-up by end July.
  • The Controller General of Accounts’ data for the Centre’s fiscal aggregates indicate a gross tax revenues (GTR) of Rs 20.2 lakh crore and net tax revenue of Rs 14.2 lakh crore for 2020-21.
  • The projected gross and net tax revenues for 2021-22 would mean Rs 22.7 lakh crore and Rs 15.8 lakh crore respectively. 
  • Taking into account RBI’s recently announced dividend of Rs 0.99 lakh crore to the Centre, the main shortfall may be in non-debt capital receipts. Together, the overall shortfall in total non-debt receipts may be limited to about Rs 0.9 lakh crore or 0.4 per cent of estimated nominal GDP. 

What expenditure should be prioritised?

Given the economic challenges in the wake of the second wave, three expenditure heads need to be prioritised.

  • First, an increase in the provision for income support measures for the vulnerable rural and urban population. This would require an amount of Rs 1 lakh crore which may be partly provided through expenditure restructuring. 
  • Second, in light of the recent decision, the budgeted expenditure on vaccination of Rs 0.35 lakh crore ought to be augmented, at the very least, doubled. 
  • Third, additional capital expenditure for select sectors, particularly healthcare, should also be provided for. This may be another Rs 1 lakh crore. 

Together these additional expenditures would amount to Rs 1.7 lakh crore, about 0.8 per cent of the estimated nominal GDP. 

What will the impact of all these on fiscal deficit?

  • Thus, we need to plan for a fiscal deficit of about 7.9 per cent of GDP consisting of 
    • (a) a budgeted fiscal deficit of 6.7 per cent 
    • (b) 0.4 per cent to make up for the shortfall in total non-debt receipts and 
    • (c) 0.8 per cent for the additional stimulus measures.
  • Given the higher fiscal deficit, it would need to add to its borrowing programme another Rs 2.6 lakh crore, taking the total borrowing, including GST compensation, to about Rs 16.3 lakh crore, from Rs 12.05 lakh crore now. 

Way Ahead

  • The success of the borrowing programme of the Centre depends on the support provided by the RBI. 
  • The support need not be direct. It can be indirect as is currently happening with RBI injecting liquidity into the system in a big way. 
  • The injection of liquidity has its limits. Even as we emphasise the expansion in government spending, it is necessary to keep in mind the implications that liquidity expansion will have for inflation.

Connecting the dots:

For a dedicated peer group, Motivation & Quick updates, Join our official telegram channel – https://t.me/IASbabaOfficialAccount

Subscribe to our YouTube Channel HERE to watch Explainer Videos, Strategy Sessions, Toppers Talks & many more…

Search now.....

Sign Up To Receive Regular Updates