The “obsessed fiscal deficit” economists are at it again—warning of danger when numbers breach neat budgetary lines, even as inflation remains under control and growth momentum stays strong. This misplaced orthodoxy risks strangling opportunity at precisely the wrong time.
Fiscal deficit is not a moral failing; it is a policy instrument. When inflation is benign and the economy is expanding, the priority must be to accelerate growth, crowd in private investment, and expand productive capacity. In such a context, a marginal overshoot of the budgeted fiscal deficit is not only acceptable—it is economically prudent.
Logic for a Growth-Led Budget
Inflation, not deficit, is the real constraint
History and global evidence show that fiscal expansion becomes dangerous only when it fuels inflation. With price stability broadly intact, additional public spending does not overheat the economy—it strengthens demand and improves supply responses.
High growth shrinks the deficit organically
Strong growth increases tax revenues, improves compliance, and reduces welfare leakages. A temporary rise in fiscal deficit today can actually lower the debt-to-GDP ratio tomorrow.
Public investment crowds in private capital
Infrastructure, logistics, urban renewal, MSME credit support, and skilling are areas where government spending unlocks far larger private investment. Cutting or constraining such expenditure in the name of deficit targets is self-defeating.
Missed growth is the costliest risk
A nation that underinvests during a growth window loses jobs, competitiveness, and demographic advantage. The economic and social cost of missed growth far outweighs the accounting comfort of a lower deficit number.
Credibility comes from outcomes, not optics
Markets respect growth sustainability, revenue buoyancy, and reform momentum more than rigid adherence to arbitrary fiscal thresholds. A credible medium-term consolidation path matters more than short-term fixation. However, this argument does not imply a licence for indiscriminate spending. The case for tolerating a higher fiscal deficit rest squarely on productive, outcome-oriented expenditure, not consumption-driven populism or inefficient subsidies. Fiscal expansion is justified only when it creates durable economic assets, strengthens productivity, and expands future revenue capacity.
Budget Recommendation
The Union Budget should unapologetically prioritise growth-enhancing capital expenditure, MSME expansion, employment creation, and productivity-boosting reforms, even if that means allowing fiscal deficit to exceed budget estimates in the short term—while clearly committing to consolidation as growth matures. In economics, context is everything. When inflation is under control and growth is high, the real danger lies not in a higher fiscal deficit—but in timidity.
(By Dr Ram Gandhi, Businessman)
