In order to strike a balance between
growth aspiration and fiscal distress, the government has taken a pro-Keynesian stance. And
towards this direction, Budget 2009-10 has pegged the government borrowing
at around Rs 4.5 tn this year, which is higher than the market estimate
of around Rs 4 tn. The government has taken recourse to such an
unprecedented market borrowing in order to bridge the fiscal deficit that has
been projected at a gaping 6.8% for this fiscal year. The government has justified
its move of stepping up public expenditure at the cost of higher borrowing so as
to sustain economic growth and to shield the economy from the impact of the
global economic crisis. Laying increased emphasis on the `inclusive growth'
formula, Budget 2009-10 has augmented the outlay for its spending
programs. This is akin to textbook type Keynesianism which reflects an
unrestrained aggression on the part of the government to raise expenditure in
order to provide a stimulus to the economy in the form of more public
investment. Whatsoever, many orthodox pundits are cautioning this move as
being too extravagant. Moreover, doubts have been raised that public
borrowing will crowd out private sector investment, which was reflected in the way
equity markets nosedived immediately after the presentation of the
Union Budget. But, the Finance Minister is hopeful that the huge spending
program will give a tremendous boost to growth, and once the growth momentum
settles in, the rest will follow.
For the year 2008-09, fiscal deficit of the central government moved up
to 6.2% of GDP, as against the estimate of 2.5% set for the year. A string of
stimuli in the form of duty cuts and higher spending added to the deficit,
compelling the government to borrow heavily since the last quarter of 2008, and
that has put heavy strain on bond yields. Between 2007-08 and
2008-09, government's domestic borrowing grew almost twofold from Rs 1,31,768 cr
to Rs 2,61,972 cr. Experts opine that these stimulus packages were necessary
as the global economy was facing an exceptional downturn and its ripple
effects had spread to India also. For the fiscal year 2008-09, the Indian
economy slowed down to 6.7%, its weakest pace in the last six years, and lower than
the 9% of previous three years. This tardiness in growth has worsened the pace
of job creation in certain sectors of the economy and soured the
investment sentiments of the business community. It has also resulted in considerable
decline in the revenue growth for the government.
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