Finance Minister Nirmala Sitharaman, while presenting the Union Budget 2021 in Parliament on Monday, said that in the history of independent India, only three times has the Union Budget followed a GDP contraction. In the backdrop of the largest contraction India has suffered post-Independence, this year’s Budget becomes the fourth such.
The National Statistical Office has projected a 7.7% contraction in GDP in 2020-21. Here are the three previous instances when the Budget was tabled after GDP growth suffered a contraction in India:
1957-58: The fall in GDP was driven by a collapse in agricultural production, not uncommon in the pre-green revolution phase. The contraction came despite the fact that the Central government’s spending grew at 17% and 23% in 1956-57 and 1957-58. India’s first post contraction budget ended up increasing the size of government spending by just 5.1%. GDP growth jumped to 7.6% in 1958-59.
1965-66: While the GDP contraction was primarily in agriculture, this was also the year of an India-Pakistan war. This makes it difficult to do any meaningful comparison of government spending the year after, as defence spending must have taken a huge toll. Among the biggest fallouts of the economic shock of 1965-66 was a huge jump in inflation. Consumer Price Index for Industrial Workers (CPI-IW) grew at more than 12% in both 1966-67 and 1967-68. GDP growth was a mere 1% in 1966-67, implying that the economy did not come back to even 1964-65 levels in 1966-67.
1972-73: This was a year when rains failed. Data from the Centre for Monitoring Indian Economy (CMIE) shows that there was a 20.4% shortfall in monsoon rainfall compared to the long period average. While the fiscal deficit increased marginally in the 1974-75 Budget, government spending actually increased by just 8.6% compared to 46% in the 1973-74 Budget. GDP growth increased to 4.6% in 1973-74.
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