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52 Economic Survey 2020-21 Volume 2

is expected to register a fiscal slippage in 2020-21. This deviation from the path of fiscal
consolidation may however be transient as the fiscal indicators rebound with the recovery
in the economy. Thus, focusing on boosting GDP growth would be pivotal for enabling a
sustainable fiscal path in the medium term.

INTRODUCTION

2.1 The global economy experienced an unprecedented crisis in the year 2020. The COVID-19
pandemic forced countries to resort to lockdown that had a sudden and intense impact on the
economic activity, financial markets and survival of the vulnerable sections of the society.
Amidst this phase of shock and uncertainty massive fiscal measures, amounting to 12 percent of
global GDP , were taken globally to mitigate the adverse impact of the pandemic. Fiscal policy,
1
in combination with monetary policy measures, emerged as an effective policy tool in times of crisis.
2.2 The fiscal policy response of the Government of India to the pandemic was distinct from
other countries. Unlike many other countries that chose a front-loaded grand stimulus package
for revival of the economy, Government of India adopted a step-by-step approach. The approach
was to provide a cushion for the poor and vulnerable section of society and to the business sector
(especially the MSMEs) in the initial phase of lockdown. This included the world’s largest food
programme, direct transfers to Jan Dhan accounts, as well as government guarantees for credit,
postponement of financial deadlines etc. With the gradual un-locking of the economy, the focus
of the fiscal stimulus has been widened with various measures taken to boost the domestic
demand such as ramping up of capital expenditure, Production Linked Incentives and other
schemes to revive consumption demand.

2.3. This chapter reviews the fiscal developments in India both before and after the outbreak of
pandemic. It begins with a discussion of fiscal performance and policy response to the pandemic
in the current financial year, followed by the section on the major reforms introduced in tax
administration in 2020-21. The chapter then gives a detailed analysis of the medium to long
term trends in Central, State and General Government finances, and concludes with a snapshot
of the outlook for 2021-22.
FISCAL SITUATION AND RESPONSE TO COVID-19 PANDEMIC

2.4 The pandemic year 2020-21 has so far entailed fiscal challenges for the Indian economy,
which were characterized by additional expenditure requirements directed towards ensuring
basic means of sustenance and livelihoods for the vulnerable people, relief measures for MSME
sector, accommodating additional health infrastructure and services to fight COVID-19 and
measures to boost the demand. Throughout this period, the Government followed a carefully
calibrated strategy in the management of expenditure.
2.5 During the first two quarters of financial year 2020-21, Ministries were classified into
three categories. Ministries in category ‘A’ were providing relief or welfare to the public. No
expenditure restrictions were placed on these Ministries and in fact enhanced allocations were
made available to them. Other Ministries which were not directly involved in the pandemic
were placed in the category ‘B’ and allowed to spend 20% of their budget per quarter. Ministries
with low priority in the pandemic situation were placed in category ‘C’ and allowed to spend

1 as on September 11, 2020 (October 2020 IMF Fiscal outlook)