Instead of big bang reforms, the govt. chose to focus more on consolidation in the Union Budget.
Union Budget 2017-18 – Government stays conservative
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The budget has done commendably on macroeconomic stability, but it falls short of expectations in measures to revive growth. The government really was hard-pressed! Considering the economic slowdown, the finance minister held on to fiscal discipline. Hence it is not likely to boost economic growth sentiment. Fiscal deficit is expected to be lowered to 3.2% of GDP in the next fiscal against the current 3.5% (though higher than 3.0% targeted). Similar to the UPA budgets, a lot of emphasis was laid on Rural Sector rejuvenation – rural employment guarantee programme, rural health mission and food subsidy – in the context of government’s expenditure priorities. This is Political Economy at its best. Read detailed Bodhi on Demonetisation here.
The budget also laid a lot of emphasis on high infrastructure spending like road construction and railways. The allocations for important infrastructure ministries have been substantially raised by about 17.6%. India needs infrastructure! However, the budget fails to provide a vision in the field of direct taxes and banking. Had it been done, it would have made a lot of difference to our economic growth path. The FM’s enhanced thrust on rural development could well be due to the upcoming assembly elections in five states. Moreover, it is also an admission of the adverse impact of demonetization on the informal sector (though no formal statement made). Direct tax incentives have been cleverly used for construction to boost activity in this sector. This sector has linkages with other sectors, which can mitigate a slowdown. However, not much seems to have been done to plug loopholes in the direct tax system. The budget also fails to provide a framework to deal with banks’ bad loans. Even the allocation for banks’ recapitalization has been lowered considerably. This will have an adverse impact on banks’ credit flow to manufacturing and other sectors. The suggestion for a “PARA” is interesting. Considering the economy’s immediate challenges of reviving economic growth and job creation, the budget leaves a lot to be desired. It is all about fiscal consolidation and a long-term perspective. Please download original files of Economic Survey and Union Budget from the Bodhi resources page.
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