Budget 2019 needs to address the immediate challenge of sluggish growth, which is aggravated by external challenges as well, says Ranen Banerjee – Partner, Public Finance and Economics, PwC India. In an interaction with Financial Express Online, Ranen Banerjee suggests some ideas for the Modi government to deal with the growth problem. Edited excerpts:

What is the biggest challenge for the Indian economy right now?

The biggest challenge is the sluggish growth and the growth issue cannot just be tackled internally. We can work on issues around demand because the demand is clearly muted in most of the sectors. We see some early indicators on auto sales and FMCG are showing quite sluggish growth. In fact, there is actually a contraction in some of the sectors. This is combined with the challenges in the external sectors. The world economy is also showing challenges in growth. Add to that the complexity of the trade protectionism and the challenges we are facing on exports, it is quite a mix of factors. The negative factors have come together and that is the greatest challenge that the government needs to address.

How can Budget 2019 address the growth concerns?

Budget 2019 needs to look at priming the growth. The private sector investments are not going to come so soon. The demand-growth is muted and there are challenges on the credit side and on the balance sheets of companies. Large companies are under stress. Given that scenario, and internal as well as external challenges, the growth has to be primed by the government.

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One expectation from the Budget 2019 is that there will be a much larger allocation on the capital expenditure side and possibly a lower growth in the revenue expenditure side. The government could also think of taking, possibly a little higher fiscal deficit target for this year given the conditions in the economy. Of course, it cannot go very wide with the fiscal deficit, but there could be few basis points increase that the government could consider for this fiscal year. It may not go for any cuts in the fiscal deficit in this year.

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What are the other 2-3 important steps that the government should take?

Some of the steps that the government can take, partly through Budget 2019 and partly through implementation are:

1. Higher allocation for the MUDRA scheme. This should target MUDRA disbursements in the higher value loans. In the last year or two, the majority of the disbursements have been in the small value, which is less than Rs 50,000, which is termed as Shishu loans. The government has to look at higher allocation first and second pushing through state-level bankers’ committee higher value disbursements, which are the Kishore loans of Rs 5 lakh plus, for the MSME segment.

2. The government should look at smoothening the process for MSMEs on the GST side of things. Lots of steps are being taken. This cannot be covered in the Budget’s purview because it is part of the State Council – the GST council – which takes the decision. But there could be certain intent or alleviating measures that could be thought of to counter the cost of compliance for the MSMEs on the GST front.