Q: Will Budget 2017 be populist, reformist, or a balance between the two approaches?
A: The Union Budget, through its reform agenda, used to set the tone and exulted or depressed the mood of the nation for that particular year. That notion, over the past two years, has changed as businesses are increasingly getting accustomed to bold reform measures being taken outside the Union Budget. In a way, the government has been making a serious attempt to bring the Union Budget closer to what it essentially is – a mere accounting and allocation exercise – while making reforms an on-going year-long process. We anticipate that the Union Budget FY18 would be devoid of any major or big-bang reforms/initiatives as it is likely to focus on hand-holding the implementation of the many major initiatives already taken and assurances made by the government earlier.
Q: Everyone expects the Indian economy to slow down post demonetisation. What steps can the Finance Minister announce to spur growth again?
A: The demonetisation-induced shock derailed the consumption growth story especially in rural areas. In such a scenario, expectations are high that the government might announce various measures and increased allocation in the agriculture and social sector. Further, both demonetisation and GST has and will have in the medium term a profound impact on the largely unorganised MSME segment in India. Hence, the budget is expected to announce some initiatives or guidelines to the MSME segment. The investment activity needs to be accelerated to support growth which is expected to have been considerably affected by demonetisation.
Thus, the prerogatives would be not only to increase fund allocation to various schemes/initiatives, but also to ensure effective utilization of the funds allocated and fast track the execution of the various infrastructure projects. The Union Budget FY18 is also expected to pave way towards increasing disposable income and thereby bringing about a revival in demand in the economy. For the salaried middle class, relaxation in personal income tax exemptions, albeit moderate, could be on the cards to boost purchasing power. Given the uncertainty already prevailing in the economy, the budget is likely to stay away from any harsh measures that could further erode the confidence of India Inc.
Q: Which sectors should find major focus in the Budget? Agriculture, industry or services?
A: We expect the government to place thrust on the agriculture and industry especially MSME segment as these two have been most affected by demonetisation drive and are likely to take a longer time to recover from the impact. We expect Union Budget FY18 to focus on rural and skill development through a range of measures and higher allocation. More incentives to the MSME sector are highly expected. Further, all eyes is on how the Budget would attempt to accelerate the adoption of digital payments, particularly in rural areas. More sops and incentives for cashless transactions and the makers of hardware required to power such transaction can be expected. This is turn could have an indirect impact on the services sector.
Q: Job creation is a big need of the hour. What’s lacking in government’s efforts so far? What can be done to make sure that the demographic dividend can be better used for the economy’s benefit?
A: Creating an environment that is conducive for firms to invest and grow will be the pre-requisite to revive employment. Herein, nurturing MSMEs through supportive policies will be key to generating employment. The sector needs more handholding in terms of finance, availability of land, simplified labour laws and common facilities. Encouraging the creation of start-ups by reducing compliance costs and the tax burden of successful start-ups could enhance the competitiveness of new firms in the MSME space. Skill development is another imperative for employability and long-term sustainability of growth.
Q: Should Budget look to up public investment? What can be done to get the private investment cycle to pick up?
A: Government capex will be pivotal to revive India’s bleak investment scenario, and in turn crowd in private investment. Addressing key issues in the public-private partnership (PPP) framework will help attract more private sector investment. Empower 3P India – build robust PPP framework with clear dispute resolution mechanism to encourage private sector participation in ‘Make in India’.
Q: What would be the biggest worry on the Finance Minister’s mind?
A: Since it is too early to assess the full impact of demonetisation, the biggest worry on the Finance Minister’s mind would be how to devise strategies to arrest the slowdown in growth. While the consumption demand, especially in the rural segment needs to be revived, the government has to kick-start the investment activity and also crowd-in private investment. At a time of subdued demand when the businesses are operating at a capacity utilization rate of 70-74%, it would not be an easy task for the government to revive the corporate investment activity.
Source: The Financial Express