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Last updated: 02 Feb, 2016  

budget-indiaTHMB.jpeg Fiscal dilemma

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Bikky Khosla | 02 Feb, 2016
What should have priority: fiscal consolidation or public spending? More and more as we are getting closer to the Budget day, this debate is gaining steam. There is a general agreement on the fact that the Budget must aim at spurring investment, but views differ on how to respond to this challenge. Loosening the fiscal purse-strings can help accelerate growth through public investment -- supporters of this view want the Centre to move away from its earlier set fiscal goals. But letting fiscal deficit slip may result in higher borrowing and thus put further stress on public finances -- another faction argues.

The RBI Governor last week cautioned against tinkering with the fiscal deficit target. Pointing to Brazil's experience, he viewed that such a move may hurt macroeconomic stability, which is currently the single most important strength of the economy during this period of global turmoil, and that both the Centre and the RBI should continue to bring down inflation. Earlier, NITI Aayog vice chairman Arvind Panagariya had also cautioned that deviating from the fiscal goal might impact the government's credibility. In contrast, chief economic advisor Arvind Subramanian had viewed that fiscal consolidation could be relaxed to boost public investment, in the background of weak corporate sector investment. The Indian industry has also urged the Centre not to cut spending to meet the fiscal deficit target for FY15.

While both sides of the argument have valid points, it seems maintaining a proper balance holds the key. A recent RBI study shows 27 percent decline in capital expenditure by corporate India in 2014-15 over the previous year. I think nothing but lack of demand is the most responsible for this investment slump. Weak corporate results are not helping; balance sheets of banks, which finance most of the investment in India, are stretched; exports have been declining; and rural demand is weak. In this situation, the government must come forward to play an active role in pushing investment and thus demand and economic growth. In addition, investment in infrastructure will also help yield long-run returns.

Fiscal prudence is also important. A minor fiscal slippage may not hurt investor sentiment much but a big one could certainly do that. So, care must be taken in this respect while also ensuring that there is no sharp cut in public expenditure. This will not be easy, particularly considering the limited fiscal space currently available with the government, but priority should be given to cutting down wasteful expenditure, rationalizing subsidies and controlling leakage and making the best of oil prices which are likely to remain soft in next fiscal. In addition, I think there is still enough scope to improve the ease of doing business in order to attract both domestic and foreign investment into the country.

I invite your opinions.
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Budget: Nothing but a fund flow statement
Srivathsan | Wed Feb 3 15:55:08 2016
The present day annual budget is nothing but a fund flow statement of govt of India finances.Nearly 80% of the income is non negotiable ie defense, salary of govt. misc govt staff expenditure, pension,interest payment fertilizer subsidy, food subsidy,and some other subsidies.Where is the scope for innovation.This must be changed to for budgeting HUMAN CAPITAL of the country. All the available skill( which is highly perishable le with time) must be utilized. Otherwise it is a social loss.O have not seen any budge thinking on this aspect. Our human capital is the asset and must be channelized for best utility.

Fiscal Dilemma
Naresh Kaushik | Wed Feb 3 07:30:48 2016
The consolidation of spendings as wages and facilities to Ministers, MPs and MLAs in the country will definitely solve this problem. So, the people at front should come forward as it is time to set an example of patriotism at this moment of crisis.

BUDGET - Fiscal dilemma
A.V. Chandran | Wed Feb 3 06:06:05 2016
White paper must be in place by virtue of press release well before the proposed Budget enabling to accept or reject reasonable feeds by experts. However I have one important point wherein Non budget expenditure must be increasing return whereas Non budget revenue must support faster increasing return in order to have a befitting budget in place duly balanced otherwise high inflation could be foreseen with abnormal socioeconomic repercussions. Please ensure that proposed Budget is introduced duly balanced. With all the best.

Ease of doing business
Srivathsan | Wed Feb 3 04:07:36 2016
A look at the editors note seems that we have not got out of financial outlay and investment climate. But the editor has put the right note at the end. THAT IS EASE OF DOING BUSINESS> Indian are self driven and maximum opportunity must be given to this trait. Keep away from harassment by million rules and regulations. Ask the revenue department why the entrepreneur is not able to increase his turnover so that Govt indirectly earns revenue and entrepreneurship is encouraged . Entrepreneurs are INDIANS and bureaucrats are Indians and it is difficult to understand why this clash. both are interested in increasing their revenue but the bureaucrat holds the tail and ask the entrepreneur to go ahead.

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