The coming budget may be dominated by two elements- reform measures and higher fiscal deficit.
There is every indication that the government may go for breaking the fiscal deficit protocols especially in the context of the slowing economy.
The economic survey presented last day on the Parliament also justifies an expansionary budget.
“Going forward, considering the urgent priority of the Government to revive growth in the economy, the fiscal deficit target may have to be relaxed for the current year.”
After the last monetary policy revision, the RBI Governor also hinted at counter cyclical fiscal policy. This implies higher government expenditure to stimulate the economy
Another factor that presses for a higher government action is the limitations of monetary policy that is so visible across the world. The economic survey also concludes that monetary policy has been exhausted. “The conventional monetary policy has almost run its full course.”
Expectations are that the government may spend higher in the infrastructure sector with the ace programme of National Infrastructure Pipeline on the starting block.
The next focus of the budget will be reform measures to stimulate investment. Here, attempts will be made to strengthen infrastructure lending, bank balance sheets, ease of doing initiatives etc. Following are the reform areas expected:
Direct Tax Code – altering the Personal Income slab is a possibility.
Ease of doing initiative particularly starting new enterprises.
Aggressive disinvestment including privatisation of CPSEs.
Public Credit Registry for credit information.
Creation of a dedicated entity for infrastructure lending.
FDI reforms in remaining selected sectors where FDI limits are lower.
RBI will be strengthened in financial regulatory powers.
Budget is expected to correct the existing regulatory structure in areas like real estate, coal mining. In the banking and financial sector, more efforts will be made to promote digital payments.
A dedicated effort to revive make in India is on cards with higher import duties on electronic products and higher capital subsidies for new investments.
(image courtesy- the financial express)