A big push on public spending to kick start the stalled investment cycle and luring in private investments by offering investment allowance to them are likely to be the unique features of this year’s budget set to be presented on 29 February. The budget this year is expected to be vision document that would “set the growth map for the next three years,” says Minister of State for Finance, Jayant Sinha. Despite knowing that spending more money out of its own pocket might increase the fiscal burden, the government commitment to spend more has gained wide support from economists. Increased government spending on key infrastructure priorities like agriculture, water, power and transport is expected to have a multiplier effect in the economy through creation of jobs and the consequent demand.
“The costs of increased spending on infrastructure should be met by the government’s ongoing efforts to reduce spending on government subsidies,” says Rajiv Biswas, Asia-Pacific chief economist, IHS Global Insight. Experts are of the view that since infrastructure spending is a kind of productive fiscal stimulus, the RBI is likely to take a pragmatic view of resultant fiscal pressure and may still reward the economy with reduced interest costs. The prevalent higher interest rates are posing a big challenge for India’s micro, small and medium enterprises (MSMEs) that have the highest potential of creating jobs in the economy. Even big and highly leveraged Indian corporates prefer overseas borrowing to bypass the higher interest costs in India.
“Boosting consumption in the economy might also be a key part of the budget,” says Deepak Kapoor, financial analyst, ADC Legal, because “unless the private sector sees the actual demand they are not likely to expand their production capacities,”. Currently much of their production capacity is lying idle for want of sufficient demand. “Unless private sector chips in, no amount of government spending is going to create the quantum of jobs that India requires,” adds Kapoor. Higher payout from the 7th pay commission is also likely to boost the urban consumption. The government is also likely to focus on reviving the rural demand by allotting more funds to rural entrepreneurs. Since rural demand constitutes about 45% of the economy’s demand, reviving it is a must for energising the national economy.
The upcoming budget should also give a high priority to initiatives to reduce India’s regulatory barriers to economic development and investment, siad Biswas.