As India is eyeing Prime Minister Narendra Modi-led Government’s fifth and full final Budget to be presented by Finance Minister Arun Jaitley on Thursday, it is likely to address some issues of concern such as agriculture distress, job creation, small businesses and investors’ confidence in order to boost economic growth. It also needs to stick to fiscal prudence.
Besides containing the fiscal deficit, the Government will need to be seen increasing spending in key areas of Indian economy which is projected to be one of the fast growing economies in the world.
Markets will focus on how much India widens its fiscal deficit beyond the 3 per cent of gross domestic product (GDP) projected for 2018/19.
Ahead of upcoming Assembly elections in eight States — including three major States ruled by the BJP — and general elections next year, the Budget 2018 may see new rural schemes and stepping up of funding towards existing programmes like MGNREGA, rural housing, irrigation projects and crop insurance.
Most economists expect a 3.2-per cent deficit as the Government looks to increase investments in key areas such as agriculture to bolster its re-election prospects in 2019. A modest widening of that nature would calm investors worried that the Government may slip away from its judicious spending.
However, stock markets remain nervous after the Government’s annual economic survey on Monday suggested ‘a pause’ in fiscal consolidation, sending bonds plummeting. “I think the Budget will focus on both investors as well as the common man,” said A Balasubramanian, Chief Executive Officer at Aditya Birla Sun life Asset Management, adding that the Government will take care so that the Budget is neither inflationary nor fiscally less prudent.
Keeping in mind the Gujarat election results that indicated erosion in the BJP popularity in rural belts, Jaitley may also unveil incentives for the farm sector.
Small businesses, which have traditionally formed the core support base of the BJP, too may get some sops to ease pain caused to them due to chaotic rollout of the Goods and Services Tax (GST) and demonetisation.
There is also an expectation that common man may get some relief in income tax by way of a raise in the exemption limit. Jaitley’s menu may see high spending on infrastructure projects like highways and modernisation of railways to boost economic growth.
The target Jaitley had previously set out was to lower the fiscal deficit to 3.2 per cent of the GDP in the current fiscal and to 3 per cent in 2018-19, the budget for which he would present in the lok Sabha.
India’s first post-GST Budget is likely to see what Jaitley does to boost growth in Asia’s third largest economy. There are buzz that tax break on capital gains from stock investments may go and it remains to be seen if Jaitley will finally show some movement on his 2015 promise to lower corporate tax rate to 25 per cent from 30 per cent over four years.
There have been mixed signals on deficit target, with chief economic adviser Arvind Subramanian earlier this week stating that a pause in the fiscal consolidation plan can’t be ruled out while Niti Aayog vice chairman Rajiv Kumar saying the Government is likely to stick to the target.
In the first eight months of 2017-18, fiscal deficit reached 112 per cent of the target, stoking fears of a fiscal slippage. The shortfall was largely due to reduced dividends from government companies, which the government looks to bridge through stake sale in state-owned firms like Hindustan Petroleum Corp. ltd (HPCl).
With excise duty and service tax being subsumed in the GST, the classifications in the forthcoming Budget may undergo change. While a new classification for revenues to be accrued from GST will be included in the Budget for the next fiscal, for the current year two sets of accounting may be presented — one for actual accruals during April-June for excise, customs and service tax, and the other for July-March period for goods and services tax (GST) and customs duty.