Key challenges for Nirmala Sitharaman’s budget 2019
The economic situation may not have changed dramatically in these five months, but priorities have shifted.Updated: Jun 30, 2019 08:32 IST
Like any general election year, 2019 brings two federal budgets. The first was presented in Parliament by then-finance minister Piyush Goyal on February 1, ahead of the Lok Sabha polls. The second will be presented by finance minister Nirmala Sitharaman on July 5, a little more than a month after voters re-elected the National Democratic Alliance (NDA) government. And that is what has occupied the attention of the ministry of finance since the new government took charge.
The economic situation may not have changed dramatically in these five months, but priorities have shifted. Promises made on February 1 are now commitments, and the objective has changed, too, from wooing voters to putting the economy back on track.
Experts expect the first budget of the Narendra Modi government’s second term to focus more on consolidation – calibrating revenue and expenditure targets in such a way that adequate funds are made available to meet the promises already made, and take policy measures to boost the economy, which grew 6.8% in the last fiscal year, the slowest pace in five years.
“Medium-term growth challenges include uplifting growth to its potential of 8% plus and keeping the deviation from this potential to a minimum across the quarters,” said DK Srivastava, chief policy advisor, EY India.
That would require a robust employment-oriented growth strategy that should be supplemented by a well-formulated countercyclical policy to address the problems posed by temporary slowdowns, Srivastava said.
The full budget that will be presented by Sitharaman next week is expected to be pragmatic rather than populist especially because of growth concerns, rising unemployment and a widening fiscal deficit, officials in the government said on condition of anonymity.
The conclusion is based on a series of meetings that took place between Sitharaman and economists, including sectoral experts, bankers and businesspeople.
Sitharaman wasted no time in getting to understand the nuances of the economy after she took charge of the finance ministry on May 31, the officials cited above said. She started her first pre-budget consultation, on agriculture and rural development, at the top of the new government’s mindspace, on June 11. The series of consultations continued until June 15. Back-to-back meetings at North Block also covered the social sector, infrastructure, climate change, financial sector, capital markets, the digital economy, startups, trade and labour issues.
According to the officials, the finance minister has received clear instructions from the Prime Minister – incentivise investments, boost consumption, focus on the rural economy and create jobs. According to the Periodic Labour Force Survey (PLFS) report for July 2017- June 2018, the unemployment rate was 6.1% in that period, seeming to suggest it was at a four-decade high, but which the government said was based on an entirely new methodology, making any comparison with previous surveys unfair
“For higher growth to translate into jobs and livelihood creation, at the required scale, productive job creation must be undertaken in all sectors of the economy – agriculture and the rural economy, manufacturing, services and infrastructure. Prioritised efforts should be made to promote employment-intensive sector,” the Confederation of Indian Industry proposed in its latest publication, Agenda for New Government.
Officials said that the budget is expected to set the stage for reforms over the next five years that could see structural policy changes in areas such as land, labour, capital markets and entrepreneurship to attract investment, offer incentives to boost consumption, and spend public money on social infrastructure for equitable growth. The focus would be on job-intensive sectors such as food processing and micro, small and medium enterprises (MSMEs).
Officials said that the budget may address key concerns of the MSME sector, which can boost growth as well as create jobs, and which has been hurt by measures such as the November 2016 invalidation of high-value banknotes and the July 2017 implementation of the Goods and Services Tax.
“MSME sectors are still facing the problem of liquidity besides various other challenges including uncertainties owing to tariff war, volatility in commodities/currencies, rapid rise in trade restrictive measures and constraints on the domestic front,”said Ganesh Kumar Gupta, president of the Federation of Indian Export Organisations.