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Last updated: 31 Jan, 2017  

budget-indiaTHMB.jpeg Budget to chart course of the economy

Prime Minister Narendra Modi delivering his statement to media ahead of Budget Session of Parliament, in New Delhi on January 31, 2017.
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Bikky Khosla | 31 Jan, 2017
Another Budget is in the offing. Like all years, expectations are in the air. Industry lobbies are eagerly waiting with 'wish lists' in their hands. It's a no-brainer to say that this will be one of the most interesting Budgets in our recent memory. The adverse impacts of demonetisation are yet to be figured out, GST is awaiting its implementation, and elections in key states of UP and Punjab are ahead. Out of four engines of the economy, private consumption, private investment and exports are stuttering, but everyone is looking not just for a way out of this mess but also for high growth. It all depends on the Budget 2017 what direction the economy will take next.

According to latest CSO estimates, which have not taken the impact of demonetisation into consideration, nominal private consumption expenditure is expected to fall by 1.2 percent in FY17, and if we take into account the demonetisation effects, the slippage is likely to be much higher. It was expected that consumption would soon get a boost, due to a good monsoon and implementation of the 7th Pay Commission recommendations, but again with demonetisation overshadowing these tailwinds, urgent steps are now needed to improve consumers' disposable income, especially among the rural population, and create jobs in areas such as manufacturing and construction.

Private investment, another engine of growth, is also a key area that needs deep modification. The government has taken several steps for improvement in the investment cycle, but with no significant success, as reflected by the decline in fixed capital formation as a percentage of GDP from 31.2 percent in the last year to 29.1 percent in the current year. This trend needs to be reversed, especially in the backdrop of demonetisation, by means of additional incentives for domestic investment, like reduction in corporate income tax rate, further improvement in ease of doing business, industry-friendly policies, and measures to address the lingering bank NPA challenge.

In the above scenario, I think public investment should also be a key agenda for the Budget this time. Historically, it is seen that public investment can help spur private investment and given that both private investment and consumption may stay subdued in the near term, the Budget should focus on more investment on infrastructure, particularly railways, roads, ports and affordable housing. Also, the Budget should give a major push to the flagship programmes like Start-up India, Make in India, Skill India, etc. Such a step will help generate employment and boost private consumption, which in turn will also push private investment.

I invite your opinions.
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Sanjiv Lamba | Wed Feb 1 00:53:11 2017
I agree totally.

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