With less than 10 days to go for the Union Budget 2017, hopes are pinned on Finance Minister Arun Jaitley to deliver a balanced budget. Demonetisation might have a bearing on budgetary allocations. Economists and credit rating agencies have listed an infrastructure push along with investment and consumption-led growth as the key priority areas for the Modi government. The observers opined that the government should focus on higher public investment, which will help in crowding in private sector investment, according to The Indian Express report.
“The government should not get straitjacketed in the fiscal consolidation agenda so that the development goals are compromised. Keynesian approaches suggest that fiscal policy should ideally be countercyclical, that is, fiscal deficits should decline when the economy is expanding and increase during economic downturns. The Fiscal Responsibility and Budget Management (FRBM) does exactly the opposite and the FRBM rules are currently loaded against the best fiscal practices practiced in other countries. This should be corrected,” State Bank of India’s (SBI) research report said. SBI in its research report has projected fiscal deficit target of Rs 5.75 lakh crore for 2017-18, at 3.4 per cent of GDP.
ICRA in its report said that budgetary allocation towards infrastructure sectors including railways and roads needs to be further increased. Also, independent regulators for specific infrastructure sub-sectors should be set up with the aim for speedier resolution of issues constraining private sector sentiments towards taking up newer projects, it said.
CARE Ratings said that while the government’s focus will be on infrastructure, some restructuring is expected on social sector schemes in the Budget, to be presented on February 1. “While the development thrust will be on infrastructure, some rebalancing on social schemes could also be expected… The budgeted expenditure towards the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) for FY16 was Rs 38,500 crore, an increase by Rs 3,800 crore compared to FY15. It is expected that the Budget allocation would increase 10 per cent in Budget FY18,” the report said.
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Sectors such as automobiles, cement, steel, paper, aluminium and fertilisers, which had the lowest capacity utilisation and were among the sectors that have been the ones hardest hit by demonetisation, will require special focus by the government, CRISIL Research said in a report. “The government can support investment directly by spending more on infrastructure, particularly roads and affordable housing. This will also help raise demand for core sectors such as steel and cement. In addition, construction of roads and low-cost housing is highly labour intensive in India, which will help generate employment in the economy,” the report said. “Domestic consumption must be boosted by improving purchasing power, especially among the rural population and workers in the unorganised sector and smoothening transaction process in cash-driven sectors. This will help remove the short-term constraint of low capacity utilisation in the industry and pave the way for investment recovery,” it said.
Some other economists are of the view that investment-led growth needs to gain precedence over consumption-led growth. Most economists also are of the view that given the government’s limited fiscal space, it will have to deviate from the fiscal consolidation road map to afford higher spending on public investment, especially in infrastructure.