30 Jan 2018 20:39 IST

Rationale: Budgets have priorities straight, but must be more specific

The winners have been spot on in recognising the key areas that need attention in the Budget



1. Budget 2018: balance between populism and fiscal prudence by Suyash Somani, XIMB

The article rightly points out that this Budget is unique in a way because it was preceded by two of the most disruptive economic decisions in India’s history: demonetisation and GST implementation. The Finance Minister faces the dilemma of maintaining a balance between populism (general elections in 2019, impact of slowdown in rural growth on rural votes, relief from GST and demonetisation) and fiscal prudence (sound macroeconomic management and efficient utilisation of funds).

The key areas of focus in the proposed Budget include increasing rural income, providing affordable housing (which will generate employment as well), boosting road and rail infrastructure, and providing an impetus to domestic production (consumer durables, capital goods). While the Budget announces a 20-25 per cent increase in allocation to rural spending, it keeps a close eye on the fiscal deficit target and mentions that the deficit can slip to around 3.5 per cent of GDP.

It recognises that it is essential to set and achieve appropriate disinvestment targets if the government wants to boost the rural economy without exceeding the deficit target by a large margin. It recommends the sale of the government’s minority stakes in various corporations and the buyout of government stakes by large PSUs in sectors such as oil and gas. The Budget also takes into consideration tax buoyancy, which is expected due to the implementation of GST, and an increase in corporate earnings.

The Budget proposal also emphasises the need to focus on climate change and reduce pollution by promoting environment-friendly initiatives such as renewable energy and electric vehicles. While the Budget lacks the necessary specificity and accounting rigour, it is balanced and practical.

2. Doubling farmer income by 2020, the national goal by Prasanth Ganesan, LIBA

The article aptly summarises structural reforms undertaken by the current government, such as the Goods and Services Tax, Insolvency and Bankruptcy Code (IBC), RERA and FDI liberalisation, along with achievements like the upgrade of India’s credit rating by Moody’s, the jump in the Ease of Doing Business rank from 130 to 100, and record inflows of foreign direct investment. It also honestly acknowledges the key challenges caused by the structural reforms, including the distress in the informal and rural economy, along with the problem of under-employment.

The top priority of the proposed Budget is to double farmer incomes by 2022. To that end, it proposes targeted initiatives and an increase in spending with an aim to increase the transparency of price discovery, improve the supply chain (cold storage), attract FDI in food processing, provide education and vocational training, and subsidise agricultural exports.

The Budget also correctly identifies infrastructure as a top priority and provides for an increase in spending in key areas like highways, railways, rural roads, ports and electrification. It aims to improve the employment situation by announcing packages for employment-generating sectors like textiles and leather and footwear, along with an increase in allocation to the MGNREGA scheme.

The language of the article is simple and free-flowing with a good structure. Also, the author understands that the Budget is an income-expenditure exercise and not a platform to announce economic reforms in all the major areas of the economy.

However, the proposed Budget does not acknowledge the constraints which the Finance Minister faces if he wants to stick to the fiscal deficit target. This Budget proposes to increase spending in many areas, increase subsidies and, at the same time, cut corporate and income taxes. Such a Budget is bound to stretch the fiscal deficit beyond the intended target and have negative implications for the country’s macroeconomic management. More thought has to be put into a realistic prioritisation of the proposed initiatives, expenditures, subsidies, and tax cuts.

3. Focus on rural economy and job creation by Saurabh Mathur, XLRI

The proposed Budget correctly recognises the economic and political imperative for the Finance Minister to focus on the rural and agricultural economy in the upcoming budget. It mentions key challenges like the pressure on farm and non-farm wages, farmer suicides, and their impact on the recent State Assembly elections.

It emphasises the importance of building rural and agricultural infrastructure (rural roads, irrigation) and improving supply chains with the help of warehousing facilities and cold storages. The Budget makes employment generation a key focus area by increasing expenditure on education, skill development, and health. It also recognises the importance of the manufacturing and infrastructure sectors for job creation, and proposes to give a boost to private investments by reducing the corporate tax rate. While proposing these initiatives, it recognises the importance of ensuring that the fiscal deficit target is not exceeded by a large margin and hence ensures macroeconomic stability.

That being said, the proposed Budget needs to be more specific regarding the exact expenditure allocation across ministries, schemes, initiatives, and tax cuts, since a Budget is predominantly an income-expenditure exercise.