DMPQ-Discuss how government of India has responded fiscally towards the economic disaster arose from covid 19 pandemic.

Affected by the Covid-19 pandemic, the flailing Indian economy is marked by contracting GDP requiring a push from the government. In this scenario, the government has resorted to Keynesian economics (government’s spending rather than the free hand of the market).

The Budget 2021 is a selective departure from the principles of the free market. The government adheres to market orthodoxy elements, such as privatization and a greater role for foreign direct investment but sought to spend more to spur growth.

This can be reflected by the fact that the Finance Minister’s speech pledges to lower the fiscal deficit to 4.5% of GDP by 2025-26 and promised to introduce an amendment to the FRBM Act to formalize the new targets (the present target as per the FRBM Act is of 3%).

Thus, the Budget marks an important departure from one of the key tenets of the Washington Consensus, the framework for market-oriented economics that has dominated policy-making in most parts of the world. Though this is a step in the right direction, it has some key macroeconomic stability concerns

Reasons for Departure From Fiscal Orthodoxy Departure

From Rigid Adherence To Fiscal Consolidation

The Economic Survey that preceded the Budget laid the groundwork for a departure from rigid adherence to fiscal consolidation.

According to the Economic Survey, in the current situation, expansionary fiscal policy will boost growth, and given India’s growth potential, we do not have to worry about debt sustainability until 2030.

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