Column : Why this is an important Budget

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: The Union Budget due to be unveiled on Monday is being awaited with more than the usual anticipatory thrill that the recipients have gradually become accustomed to. There is more riding on this Budget than the normal cheers and groans that accompany announcements of tax exemptions and levies, of the monotone detailing of mind numbing rates of countervailing duties and excise exemptions and the declarations of intent of increasing social sector spending.

Only occasionally do budget proposals need to be made keeping in mind a wider array of potentially conflicting objectives, more so that these might actually define the course and character of our nation in the years ahead. On the cusp of a nascent and still uncertain recovery after a virtually unprecedented episode of global financial turbulence and economic slowdown, where the slightest policy mis-step can have extended adverse consequences, the consequences of profligacy will be felt more than in many other previous years.

Reams of material have been written on the expectations from the Budget—social sector spending, infrastructure, the usual litany of requests for tax changes from industry and professional bodies, economic stimulus, etc. But what are some measures that the Budget should address? In other words, what are key risks that need to be addressed, what are the phasing priorities for taking on these risks and what might be the best instrument for mitigating these risks?

The Central government’s expenditures account for about 16 percent of India’s GDP. Therefore, accounting for these expenditures, as well as the income sources for funding these, defines the levers that determine the quantum and nature of growth. The role of the Government in defining the nature of growth has been particularly important in the past year, given the sharp slowdown in private sector consumption and investment. The centre itself has spent an estimated 4 percent of GDP through various means (direct expenditure increases, tax exemptions, agricultural debt waiver, salary increases and so on) and even more through protecting consumption levels through off-balance sheet means like oil and fertiliser bonds. The RBI’s monetary policy measures will have added another 6-7 percent of GDP as liquidity support.