Populist yes, not sure it’s pro-growth

The budget’s emphasis on agriculture, education, housing, health and welfare would appeal to the common man. Following are some of the initiatives announced by the FM: doubling farmer incomes by 2022 via yield growth and MSP going up to 150 per cent of input prices; food processing to grow further; rising agricultural exports (potential: $100 billion, actual: 30 billion); developing mega food parks; housing for all by 2022; integrated B Ed program; schools in tribal areas; expansion of health care centers; National Health Protection Scheme to help 10 crore families gain health cover up to Rs 5 lakh per annum per family; Prime Minister Research Fellowships for 1000 B-Tech grads; and 24 new government medical colleges (at least one per state).

There are some initiatives that could help boost economic activity: expanded credit for MSME sector; development of national heritage cities; 10 tourist centers to get iconic status; 9000 km highways to be completed; 18000 km of railway line doubling; 36000 km track renewal; expanded investments in telecom; defense sector modernization; reforms to further further improve ease of doing business; and Air India privatization. President, VP and Governors got a salary increase. There is also good news for Parliamentarians: inflation indexing of remuneration.   

Fiscal Prudence – Not Yet

Despite a lot of inflows from disinvestment, fiscal and revenue deficits as per cent of GDP for current fiscal were placed at 3.5 per cent and 2.6 per cent respectively as against budgeted 3.2 per cent and 1.9 per cent. 

The Fiscal Responsibility and Budget Management Act was enacted way back in 2003, to control/reduce fiscal deficits. Targets were set from time to time and missed most of the time. In 2016, the Government set up a Committee to review the FRBM Act.

The Committee headed by N K Singh recommended the following: fiscal deficit target to be 3 per cent of GDP in years up to March 31, 2020, going down to 2.8 per cent in 2020-21 and 2.5 per cent by 2023. Integral to these targets is also reducing the revenue deficit to as low a level as possible, preferably to a level of zero.

At one time it was hoped that revenue deficit would be eliminated by 2008-09. The data from RBI on macro aggregates and deficits provide us with the following revenue deficit levels. The number for 2017-18 was from the latest budget document. The new regime started well, but lost ground just this year.  One must also note that selling assets and gaining revenue is not fiscal consolidation.

Growth can wait…
The economy took a relative downturn in 2017-18. GDP growth was 7.1 per cent during 2016-17. It will be around 6.5 per cent during 2017-18. There is not much in the budget to boost investments. Though not much in terms of new taxes and tax increases, the announcement of a modest 10 per cent tax on long-term capital gains has brought the markets down while the budget speech has been going on. 

(The author is Adjunct Professor, Institute of Water Policy, LKY School of Public Policy, Singapore and Governing Body Member, GITAM and IFHE Societies. Earlier, he worked at the National University of Singapore and the World Bank. Contact: bhanoji@gmail.com)

By Bhanoji Rao