In a tantalising hint at the kind of stance the upcoming budget might take, the 2020-21 Economic Survey called for a fiscal expansion, and supported a "more active, counter-cyclical fiscal policy" at a time of economic slowdown, like the current COVID-19 induced one.
The survey, drafted by Chief Economic Advisor Krishnamurthy Subramanian and his team, said that a fiscal policy that provides an impetus to growth will lead to lower, not higher, debt-to-GDP ratios.
"While acknowledging the counterargument from critics that governments may have a natural proclivity to spend, the Survey endeavours to provide the intellectual anchor for the government to be more relaxed about debt and fiscal spending during a growth slowdown or an economic crisis," the survey said.
These observations in the survey come just days before Finance Minister Nirmala Sitharaman presents the Union Budget 2021-22, in which she is expected to announce a fiscal expansion. For 2020-21 the budgeted fiscal deficit target was 3.5 percent of GDP. However, the pandemic put paid to that. Now, from an expected fiscal deficit of 7-8 percent of gross domestic product in 2020-21, the Centre may follow a glide path which will bring down the budget deficit to 4 percent of GDP by 2025-26.