Why the Government Preferred Future Debt Over Present Distress
The Union Budget immediately triggered concern in bond and currency markets after the government projected higher borrowing. Yields moved, the rupee faced pressure and commentary quickly labelled the move risky. But the debate is incomplete if it stops there. The decision was not an oversight. It was a conscious economic choice to move hardship away from the present and distribute it over time. The real question is not whether risk exists, but whether the alternatives would have been less damaging.
The Three Choices Every Government Faces
Every government operates within the same fiscal triangle. It can raise taxes, cut spending, or borrow. None of these options is painless. Criticism often assumes a cleaner path existed, but in practice each route shifts the burden to a different section of society at a different moment. The budget effectively chose to postpone pain rather than concentrate it immediately.
Why Tax Increases Were the Worst Immediate Option
Raising taxes would have been the fastest way to calm bond markets. It also would have been the fastest way to weaken demand. India’s economy depends heavily on consumption and small business activity. Higher taxes would have reduced disposable income, slowed retail spending, and discouraged private investment. At a time when households are already adjusting to inflation cycles, this would have translated into slower hiring and weaker growth within months. Financial stability would improve, but economic activity would cool quickly.
Why Spending Cuts Would Have Hurt Faster Than Markets Expect
Cutting spending may appear fiscally disciplined, yet in a developing economy it transmits shock even faster. Government expenditure is not abstract accounting. It includes infrastructure building, rural transfers, subsidies, defence procurement and state support. These payments circulate through wages, contracts and supply chains. Reducing them compresses income directly in the real economy. The deficit narrows on paper while unemployment risk rises in practice. Austerity stabilises balance sheets but destabilises livelihoods.
Borrowing: The Option That Buys Time
Borrowing therefore becomes the option that buys time. Instead of extracting resources from citizens today, the government spreads the adjustment over future years. If growth is maintained, the tax base expands and the debt burden becomes more manageable. This is not denial of cost, it is a sequencing decision. Stability now in exchange for gradual adjustment later.
Acknowledge the Real Risks
The risks are real and should not be dismissed. Higher borrowing can push yields upward, keep the rupee sensitive to global flows and increase future interest payments. The central bank may need to manage liquidity more actively. These are genuine financial consequences. But they are financial consequences, not immediate economic contraction. The government appears to have judged that markets can absorb volatility more easily than households can absorb sudden slowdown.
Markets vs Citizens: Different Time Horizons
This difference reflects contrasting time horizons. Markets price risk instantly. Governments manage welfare across years. A bond trader reacts to auction supply today, while policymakers look at employment, consumption and investment over the cycle. Both perspectives are valid, but they serve different objectives.
The Political Economy Reality
In a democracy, economic stability has social implications. Sharp fiscal tightening may impress investors but can strain incomes and confidence. By choosing borrowing, the government signalled a preference for continuity of growth rather than abrupt adjustment. The budget did not eliminate cost; it relocated it into the future where it can be handled alongside expanding output.
Conclusion
The decision may not satisfy those seeking immediate fiscal neatness, yet it is economically understandable. Faced with three imperfect choices, the government opted for the one that avoids immediate distress while preserving activity. Future debt is a burden, but present instability can be more damaging. The budget reflects a judgement that sustaining momentum today offers the best chance of managing obligations tomorrow.
