Budget plan

+100%-

Going by the state of economy in the country, the NDA-government should focus on long term planning because there is not much it can do for economic recovery in the immediate future. Since the Union Budget is less than three weeks away, the planning process and the forecast for the economic recovery are bleak, the government should take stock of the factors that have led to economic slowdown for making course corrections. The reason for that isn’t just the limited fiscal and monetary space available for stepping up government spending, without putting public debt sustainability at risk, or further slashing interest rates, in a scenario of rising inflation expectations from higher food and fuel prices. But equally important is the state of private investment in all the sectors, particularly the core sector, which has not shown any improvement in the past few months. It has to be noted that only a handful of Indian corporate houses today are in a position to infuse promoters’ equity in big-ticket projects costing, say Rs 10,000 crore or more. Nor are there many banks willing to finance the debt portion in both the private and public sectors. The present scenario of lack of confidence, if not ability, among both promoters and lenders, is the opposite of what it was during the investment boom between the years of 2004 to 2011. And when consumers, too, are feeling the pinch and not opening their wallets, it adds to an overall dismal picture for economy. In the short run, far from projecting an immediate recovery, the budget should be conservative in its growth and revenue collections, while coming clean on the actual deficit numbers. These would mean providing fully for unpaid food and fertiliser subsidy dues; not resorting to “off-balance sheet” expenditures through borrowings forced on the likes of National Highway Authority of India (NHAI), Power Finance Corporation (PFC) and Indian Railway Finance Corporation; and moving from a ‘cash’ to ‘accrual-based’ accounting of revenues and expenditures. Higher accounting transparency, along with focusing on the revenue as opposed to fiscal deficit, will do a lot to inspire market confidence. For investors, what matters is not the headline deficits as much as credible fiscal consolidation that frees up resources for the private sector. The same goes with grand plans such as investing Rs 102 lakh crore in infrastructure over the next five years. It is better for the NDA-government to focus on completion, inaugurating newer projects and achieve financial closure of few big projects from the credibility point of view. It also needs to concentrate on the Dedicated Freight Corridor, the Mumbai-Nagpur Super Communication Expressway and the Noida International Airport, few to name. The confidence of the people will return when they see such projects go off the ground in near future. Linked to this is a related point. If the road to recovery is long, the NDA-government has to recalibrate its political strategy as well accordingly. The obsession with winning every next election, big or small, makes the ruling party do things that may attract votes in the short term, including through communal polarisation. But these policies will not help the economy, which has already suffered shocks from demonetisation, Goods and Services Tax (GST) implementation or the ongoing anti-Citizenship Amendment Act protests and cannot possibly take more. It is in both the Modi-government’s and the BJP’s interest to bring the focus back on the economy, which will yield political dividends for the next General Elections. In fact, at this stage, it is important that some of the measures announced by the centre on relief to corporate tax payers are unlikely to spur economic growth that has been hit hard during the past 45 years. The unemployment rate is also the highest in the past more than four decades. In addressing these issues, the government should remove the confusion instead of raking up new issues that can further harm the economy.