The Modi govt has to ensure that the 2024 Lok Sabha election doesn’t entice it to throw fiscal prudence out of the window like UPA-2 did.
From an economic point of view, there is a remarkable similarity between Modi 2.0 and the UPA-II. These similarities are circumstantial – a climate of economic gloom. But it is instructive to compare how Manmohan Singh and Narendra Modi governments are responding. While the Modi government has handled several of these similarities better than the UPA-II, it must avoid many looming pitfalls.
Both the second terms of the UPA and the Modi government began with a global crisis that had significant ramifications for the Indian economy. For the UPA, this was the 2007-2008 global financial crisis, which began to impact India from 2009 onwards. For the Modi government, its second term began in 2019, and the Covid-19 pandemic hit in early 2020.
In both cases, the Centre had to significantly loosen its purse strings and support the people and the economy through a sharp increase in government spending. This increase naturally had an impact on the fiscal deficit, since, in both periods, the tax revenue could not keep up with the increased outgo.
TCA Sharad Raghavan 