Page 424 - ES 2020-21_Volume-1-2 [28-01-21]

02

Fiscal Developments

CHAPTER

"Precision Beats Power, and Timing Beats Speed"
— By Conor McGregor

In the backdrop of an unprecedented crisis, the year 2020-21 has been a challenging
one on the fiscal front. The shortfall in revenue collection owing to the interruption in
economic activity and the additional expenditure requirements to mitigate the fallout
of the pandemic on vulnerable people, small businesses, and the economy in general,
created immense pressure on the available limited fiscal resources. In order to cater to
the increased demand for resources, the target for gross market borrowings of the Central
Government for the financial year 2020-21 was revised from the Budget estimate of
` 7.8 lakh crore to ` 12 lakh crore.

India, therefore, adopted a calibrated approach best suited for the evolving situation of the
economy in contrast to front-loaded large stimulus packages adopted by many countries.
India's fiscal policy reflected the understanding that aggregate demand, especially that for
non-essential items, reflects precautionary motives to save, which inevitably remains high
when overall uncertainty is high. Therefore, during the initial months of the pandemic
when uncertainty was high and lockdown imposed economic restrictions, India did not
waste precious fiscal resources in trying to pump up discretionary consumption. Instead,
the policy focused on ensuring that all essentials were taken care of, which included direct
benefit transfers to the vulnerable sections, emergency credit to the small businesses,
and the world’s largest food subsidy programme targeting 80.96 crore beneficiaries.
During the unlock phase, when uncertainty declined and the precautionary motive to save
subsided, on the one hand, and economic mobility increased, on the other hand, India
ramped up its fiscal spending focusing on overall demand revival. India’s demand-side
policy, thus, underscores the idea that pressing on the accelerator while the brakes are
clamped only wastes scarce fuel.

Owing to the recovery of the economy over the past few months, the monthly revenue
collections have witnessed a revival. The monthly GST collections have crossed the
` 1 lakh crore mark consecutively for the last 3 months, reaching its’ highest ever in
December 2020. Reforms in tax administration have set in motion a process of transparency,
accountability and more importantly, enhancing the experience of an honest tax payer
with the tax authority, thus incentivising tax compliance. The expenditure policy for 2020-
21 has been focused on re-prioritisation of expenditure according to evolving situation,
with an increasing emphasis on capital expenditure. Capital expenditure during the last
three months of the year 2020 recorded an unprecedented YoY growth of 129 per cent in
October, 249 per cent in November and 62 per cent in December. Keeping in view the
revenue shortfall and the demand for higher expenditure during the year, the Government