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Well - Balanced To Spur Growth

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

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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 per cent and a real GDP growth of around 7-7.5 per cent also look realistic, while at the same time fund flows into 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 11,000 crore) coupled with  the GST regime settling down (expected to bring in Rs 7.4 lakh crore in 2018-19) and a feasible disinvestment target of  Rs 80,000 crore, 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 per cent  Minimum Support Price above production costs for agricultural produce.

Interestingly, even though the Economic Survey assumes a real GDP growth of around 7-7.5 per cent in 2018-19, the Budget assumes 11.5 per cent nominal GDP growth, which underlines an assumption of  inflation of around 4-4.5 per cent, 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  $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 crore, 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 per cent to around Rs 6 lakh crore.

Railway capex has been at around Rs 1.5 lakh crore. A 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 recapitalisation of the banking system and strategic disinvestment targets reflect 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  to GDP ratio and provide for more fiscal space for targeted expenditure. 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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magazine 17 february 2018 Union Budget 2018

S.N. Subrahmanyam

The author is CEO and MD, Larsen & Toubro

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