As far as the latest Economic Survey is concerned, the past does not pose much of a problem for the Narendra Modi government. India and the world have been living out a pandemic. Explaining past policy failures, therefore, causes little embarrassment to the Centre. Therefore, the estimated 7.7 per cent contraction in India’s annual growth rate in gross domestic product is unlikely to be viewed as a failure. Under the present circumstances, it is perhaps more important to analyse the Economic Survey with an eye on the upcoming Union budget. It contains tell-tale hints about the economic policy framework that the Central government is expected to adopt. The fiscal deficit for the financial year, 2021, had been predicted to be 3.5 per cent of GDP. It will clearly be much higher. The Economic Survey does not address the issue at all. Instead, it focuses on the combined primary deficit of the Centre and states — the difference between the fiscal deficit and interest payments — and estimates it to be 6.8 per cent of GDP. This implies that the Union budget would announce a monstrous fiscal deficit of the Centre alone, let alone the states.

How will this deficit be financed? Higher taxation of the rich is one obvious policy choice. However, the chief economic adviser has clarified in no uncertain terms that this route will be avoided. Instead, he indicated that borrowing would be the way out. Borrowing is justified with reference to India’s soon-to-improve growth rate vis-à-vis new interest payments. The growth rate is expected to be higher than interest payment obligations, which leaves a balance to finance government expenditure for growth. Such growth, the Economic Survey says, would increase the “pie” available for the poor without inconveniencing the rich. Going by the Economic Survey, the Union budget would be easy on taxation and spare at least the super rich.

Is borrowing the right path to follow as far as India’s credit rating is concerned? The Economic Survey points out that India is the fifth-largest economy in the world. Yet, credit rating agencies do not award it an AAA rating, the way China was treated in the past. On the other hand, India’s foreign exchange reserves are adequate to pay off its private as well as public debts without any problem. More borrowing could, therefore, be announced by the budget along with less taxation. The Economic Survey suggests that this will not merely help India grow faster but also remove inequalities since the larger pie will be enjoyed by a larger number of people. This larger output will be available as early as FY 24, and this will only require a short-term forbearance by the population. The long term looks rosy, except, of course, for John Maynard Keynes’s famous repartee that in the long run everyone will be dead.