Union Budget: Sitharaman's challenge this time is a lot steeper that it looks
Drilled down to its basics, a budget, whether of the government or a household, is essentially the same. It must balance expenditure on one hand with receipts or income on the other. But there is one key difference.
Governments have an inalienable right to print money. So while anyone may borrow to spend in excess of one’s financial inflows, in theory, there is no limit to how much governments can borrow, as they can always create money to repay. If this is overdone, of course, it has harsh consequences: currency debasement caused by inflation being one, mounting public debt being another.
This places a huge onus on elected governments, especially in poor democracies like ours. We have limited resources, but the demands on them are virtually unlimited. Populist pressures, combined with the ever-rising need to spend on sectors that cannot be left to private investment, such as defence and other strategic fields, infrastructure, basic education, primary health and so on, mean finance ministers have a tough job making financial allocations.
Finance minister Nirmala Sitharaman too must address the clamour for more funds with the limited means at her disposal. As is to be expected in a developing country, tax revenues and other non-loan receipts are woefully short of demands on the exchequer, leaving the FM with no option but to borrow. The key question is how much.
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