New Delhi, With BJP-led NDA government certain to come back to power at the Centre, the Finance Ministry has accelerated the pace of finalising the broad contours of the Union Budget 2018-19, official sources here said on Thursday.
The sources said budget preparations, with a focus issues that would be crucial to take the economy out of its the present sluggish phase had started earlier, during the campaigning for the general elections.
The GDP growth has slowed to 6.6 per cent in October-December period of 2018-19 and is expected to fall further to 6.3 per cent in the last quarter of the previous fiscal.
The focus in Budget 2019-20 will be on long-term structural issues rather than on short term ones, the sources said, without divulging the exact contours of the steps or policies to be taken up in the full Budget.
They pointed out that agriculture and farmers would be a big focus, as also sops to the industry and MSMEs through tax breaks.
There would also be steps to address the declining trend of household savings and job creation through rural employment schemes could get a leg-up.
The ministry is in favour of tax sops for the MSME sector and has proposed measures for increasing household savings to boost capital formation. Household savings are the prime source of resources for public sector spending and touched a 20-year low of 17.2 per cent in 2017-18.
The ministry itself acknowledged in its March economic report that the economy had slowed down in 2018-19 on declining growth in private consumption, slow increase in fixed investment and muted exports.
The concerns on the economy are in the areas of employment generation, boosting rural demand, consumption, as well as investment.
There is a likelihood of public investment in infrastructure and social welfare schemes getting a boost in the Budget 2019-20, the sources added.
The Asian Development Bank (ADB), the RBI and the IMF have all cut India’s GDP growth forecast for 2019-20 to 7.3 per cent.
The government’s Central Statistics Office (CSO) too has trimmed the country’s 2018-19 growth forecast to 7 per cent, from its earlier estimate of 7.2 per cent.
The persisting slowdown has now been further reflected in the latest contraction in the Index of Industrial Production (IIP) – the first time in the last 21 months – and the third quarter GDP growth moderating to 6.6 per cent, which again is the slowest in the last 5 quarters.
India Ratings Chief Economist D.K. Pant said “the biggest pressure point is growth slowdown and there are many such points. Government has to tackle this.”
According to him, the new government should more lay stress on structural things and take steps to decline household savings.
“Until the structural rigidities are not removed, slowdown cannot be checked. A long term strategy is needed for agriculture. Currently the consumption is also collapsing so some kind of stimulus is needed.
“There will be something in the budget either in the expenditure side or in the capex side to revive the economy” he said.
Former Chief Statistician Pronab Sen said the challenges remain – agricultural distress and a very weak MSME sector.
On the steps the government needs to take, Sen said: “That depends on how the government looks at the problem and what is the its diagnosis of the problem in the economy.”
N.R. Bhanumurthy of the National Institute of Public Finance and Policy said the government needs to relook at the Fiscal Responsibility and Budget Management (FRBM) Act roadmap that it is following, which, according to him, is flawed. He advocates reverting to the revenue deficit target which the ministry removed last fiscal.
“FRBM is supposed to be an expenditure switching mechanism. What India is following is capital expenditure compression mechanism. FRBM had a revenue deficit target which the government removed last year. This means there is no compulsion on the government to increase the public investment,” he said.
“They need to revert back to the original FRBM Act where they had a revenue deficit target because by compressing the capital expenditure, the government is trying to bring down the fiscal deficit and this is also increasing the revenue expenditure.
“It does not lead to expansion in the economy and only leads to consumption demand, FRBM is supposed to lead to investment demand to create growth,” he added.
