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A Well-Balanced Budget To Spur Growth

Strongly feel that we are in the cusp of the next growth cycle and India would continue to be the fastest growing global economy/ market

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Budget 2018-19 is a pragmatic effort, fine balancing the requirement of fiscal rectitude while keeping in focus the need to connect the missing links in infrastructure and farm sector development.

In reflection fiscal deficit targets for 2018-19 at 3.3% and a real GDP growth of around 7-7.5% also looks realistic while at the same time fund flows into the important sectors like infrastructure remain supportive.

Given the increased buoyancy in direct tax collections and the increase in tax base, imposition of LTCG and increased cess (brings in Rs.11000 cr) coupled with GST regime settling down (expected to bring in Rs.7.4 lakh cr in 18-19) and a feasible disinvestment target of Rs.80000 cr, chances of fiscal slippage for 2018-19 would be low. Much would depend on how the expenditure side pans out in a pre-election year with stress on increase in farm income and a guaranteed 150% Minimum Support Price above production costs for agricultural produce.

Interestingly, though the economic survey assumes a real GDP growth of around 7-7.5% in 2018-19, the Budget assumes 11.5% nominal GDP growth which underlines an assumption of inflation of around 4-4.5% which is in line with RBI expectations.

Downside risks are mainly external including among others any sharp rise in crude oil prices above the average levels of USD 60 per bbl and the attendant rise in current account deficit and pressure on exchange rates. Abrupt rise in developed country interest rates is also a tail risk which would lead to capital outflow from bond and stock markets.

Strong emphasis on job creation, better targeted rural development/ poverty alleviation schemes, credible support to affordable housing and the continuing stress on infrastructure development constitute the core of the budgetary exercise.

The budget has reiterated the need for infrastructure investments as the "sine qua non" for sustained growth with a requirement of Rs.50 lakh cr which has to come partly from the government but importantly through 'crowding in" of investments from the private sector.  Government Infrastructure investments is set to grow by 21% to around Rs.6 lakh cr. Railway capex has been at around Rs.1.5 lakh cr. Lot of stress has been made on urbanisation through adoption of smart cities and smart infrastructure and construction of large infrastructure projects in transportation like "Bharat Mala", aviation and ports. More importantly, the attendant structural reforms through the adoption of the IBC and clear emphasis on recapitalization of the banking system and strategic disinvestment targets reflected the long term commitment of the Government. Such incentives will release risk capital, lower risk averseness of the financial sector and lead to the upturn of the private capex cycle.

Higher tax buoyancy and greater tax base will raise the stagnant Tax GDP ratio and provide for more fiscal space for targeted expenditure. Such efforts are expected to 'crowd in' the much required private investment and rejuvenate the capex upturn which is so very important for the success all such initiatives.

The emphasis on digitization as the underlining tool for proper delivery and governance would go a long way to aid productivity and transparency under the emerging business/social environment.
The ambitious National Health Protection Scheme with a targeted coverage of 10 crore families marks a watershed moment for the Indian health services sector. Moreover, the decision to reduce corporate income tax for all firms with turnover below Rs.250 cr to 25% is a welcome move.
Given the underlying local & global economic trends coupled with the evolving political/ electoral realities it is a good budget. Indian economy has been resilient to two major structural changes adopted during the last two fiscal years. Issues relating to bank recapitalization and bad loans resolution is underway. Strongly feel that we are in the cusp of the next growth cycle and India would continue to be the fastest growing global economy/ market.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Union Budget 2018 fiscal deficit

S N Subrahmanyan

The authir is CEO & MD, Larsen & Toubro

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