Economists on Wednesday asked the government to continue with bold reforms and keep up the focus on growth and reconstruction, as it prepares for a Budget to build on the recent growth momentum and bring the Covid-hit economy back on track fast, sources told FE.
In a pre-Budget consultation meeting with finance minister Nirmala Sitharaman, some of the economists impressed upon the government not to unduly worry about the fiscal trajectory for FY23 and continue to bolster expenditure.
With this, Sitharaman concluded Budget consultations on Wednesday, having held eight virtual meetings with over 120 invitees representing seven stakeholder groups. They presented a plethora of suggestions, including rationalisation of personal income tax slabs, deepening the bond market, increased R&D spending, infrastructure status for digital services, further raising health and education budgets; bringing in job scheme for urban India and incentives to hydrogen storage and fuel cell development.
The Budget for the next fiscal year is to be presented on February 1.
The suggestions come amid fears that the government may apply the brakes on its reforms drive after it was forced to repeal three contentious but important farm laws in November in the face of stiff resistance. Another proposal to privatise two state-run banks also faces strong opposition from bank unions.
The customary consultation exercise was undertaken this year amid fresh concerns about a new Covid strain, although the impact of the Omicron variety is expected to be less severe amid a surge in the vaccination drive.
The stakeholder groups include representatives and experts from the agriculture and agro-processing sector; industry bodies; infrastructure and climate change; financial sector and capital markets; services and trade; social sectors; trade unions and labour organization, and economists.
While various agencies have expected real growth to be in the range of 8% to 10.5% in FY22, sustaining this momentum would be a challenge in the next fiscal as the conducive base effect diminishes. The Budget is expected to announce measures to keep up the pace of growth. Former chief economic advisor KV Subramanian expected growth to be in the 6.5-7% range in the next fiscal and about 7% after that.
The Budget’s focus will also be on the path of fiscal prudence after the pandemic hit the consolidation road map last fiscal.
While the Centre’s fiscal deficit for FY22 is budgeted at 6.8% of GDP, analysts are divided over the Centre’s ability to rein in the deficit within the target after factoring in a clutch of additional expenditure commitments.
The Centre’s fiscal deficit widened to a very high level of 9.2% of GDP in FY21 due to Covid-related additional spending and revenue crunch. The announced plan is to reduce the deficit to below 4.5% of GDP by FY26. The Budget will give clarity on how and when the FRBM-mandated level of 3% fiscal deficit will be achieved.
As private investments are yet to turn the corner, the role of government spending as a growth catalyst remains critical. Between April and October, the Centre’s revenue expenditure rose 7.5%, against the budgetary goal of trimming it by 5%. However, its capital expenditure grew 28%, against the budgetted rise of 30%.
Apart from Sitharaman, those who attended the pre-Budget consultation meetings included ministers of state for finance Pankaj Chaudhary and Bhagwat Kishanrao Karad and top officials of the finance and corporate affairs ministry.