Major investment advisers are expecting the government to step up public spending in the budget
as demand is weak and current account deficits are low.A great stress has to be
laid on social and physical infrastructure, agriculture and PSU banks’
recapitalisation.
Five reasons why the Finance Minister should give priority
to growth rather than fiscal consolidation in the upcoming Budget
- Since the business cycle remains weak, govt. needs to government needs to step‐up spending in infrastructure—roads, railways, metros, education etc—where there is no overcapacity and are not influenced by global factors.
- Due to drop in tax revenues from oil and land transactions states may be forced to cut back development spending.
- The government should relax fiscal targets use additional fiscal space created to enhance public infrastructure, be it rural roads, national highways, railways, irrigation, rural housing, PSU bank recapitalization, GST compensation etc. Such spending will help economic growth without undermining the inflation outlook.
- In 1999-2004, the aggregate fiscal deficit of Centre and states averaged around 8-9 percent, but retail inflation remained well contained around 4 percent despite continued price hikes in retail fuel prices.
- Bulk of the fiscal consolidation from FY12 to FY15 has been achieved through decline in expenditure to GDP ratio rather than upturn in tax/GDP ratio. The main brunt of consolidation has been borne by development expenditure such as education, health, rural development. Continued retrenchment in these critical areas can hurt medium‐term growth prospects of the economy.
Source:Moneycontrol
