s one gets closer to the day of the Union Budget, one’s expectations from it are soaring. In all likelihood, next week’s Budget will have some big-bang announcements. The government may try to bring in a lot of structural changes to turbo-charge the economy. Rebooting growth will be the single most important compulsion for the government. Even as the general belief is that Union Finance Minister Nirmala Sitharaman will loosen the purse strings so that people have more surplus money in hand, it is still anybody’s guess given the tight fiscal position of the government. Considering that there is very little investment by the private sector, the government must not shy away from spending big citing bad fiscal position. It should stop obsessing over a slippage on fiscal deficit.
There are no major elections in the country except for Delhi in the short term. The next major polls will be Bihar Assembly elections in October. In view of this, the Finance Minister will have a little leeway to take some difficult decisions with regard to kick-starting growth. Runaway price rise, widespread joblessness, tepid consumer demand and farm sector distress have rattled rural India on end. The government’s welfare schemes, especially in states like Odisha where there is a popular government is ruling, have gone a long way to bottle up public anger. Flash sops like KALIA by the state government and the Prime Minister’s Kisan Yojana by the Centre have brought in some succor to a section of the distressed farmers last year ahead of elections. However, these were temporary balms. They cannot address the structural ills affecting the farm sector.
With India’s economic growth at a record low and unemployment situations worsening by the day, the FM would definitely announce some measures to revive growth. Everybody starting from farmers, fund managers, investors, traders to salaried men are ready with their wish lists. From a tweak in personal income tax to more funds allocated to agriculture, rural housing, small businesses to tax breaks to equity investors, the market is expecting some big-ticket announcements from the Finance Minister. So what does the common man want from the Union Budget? Rural India would want investment in rural infrastructure and housing to go up. A raise in the allocation to the farm sector is something that would go down well with farming community. Recapitalisation of public sector banks would result in more funds to rural India. Structural tightening to recover non-performing assets of banks may be attempted at. The Finance Minister in December 2019 had announced projects to the tune of `102 lakh crore. A roadmap on the execution of this ambitious plan is expected to be laid out in the Budget. Power, railways, urban facilities, education, health, rural electrification and real estate will receive impetus.
Fiscal slippages will weigh heavy on the mind of the government. The markets seem to be factoring in a fiscal deficit to GDP ratio of 3.7 to 3.8 per cent. To address the revenue gap, the Finance Minister will focus on privatisation and divestment of stake in government-controlled companies. The government would want to finish with Air India divestment in the second quarter of the fiscal. Announcements on a possible raise in minimum support prices (MSPs) of commodities and subsidies will be helpful in bringing demand back on track. Reduction of personal income tax slabs would also be on the agenda of the Finance Minister to increase disposable incomes that will in turn stoke consumer demand.
Some easing in policies governing investments in stock markets is also in order. The stock markets are bullish now. The markets are receiving lots of foreign money. FDI flows into India are also growing in recent years. However, the government must not take it for granted. The snub to Amazon CEO Jeff Bezos earlier this week sent out a wrong message to global investors. The FM in her budget speech must announce some steps to improve ease of doing business in the country. Moreover, existing FDI rules could be tweaked and investments many be allowed in new areas. The Budget wish list seems to be a long one. We hope the FM will make some big-bang announcements that would help the economy getting back on track.