Microeconomic and Macroeconomic Challenges before the FM in Budget 2018-19

Revive Growth – The first and foremost challenge before the government is to achieve the high GDP growth numbers. After the dual jolt of demonetization and GST the growth figures hit a low of 5.7%. It has steadily improved since then and the economy recorded a 6.3% growth in the quarter ending September. Also there is some good news on the said front, according to recent Sanctum Wealth Management report India will be the fastest growing large economy in 2018 surpassing China and achieving a 7.5 per cent growth rate. But for the said to materialize Budget 2018 will have to play a very vital role. Boosting investors’ confidence, practicing fiscal prudence and providing the required impetus for quick growth will be important.

Improve Consumer Confidence, Sentiment and Spending – Consumer confidence and health of the economy are both interdependent on each other. After the cash crunch of demonetization the government will have to encourage greater spending especially by the middleclass. This will in turn improve demand and add to growth in the manufacturing sector. Cut in personal tax rates which is widely expected is one of the ways to put money in the pockets of the consumers. Keeping inflation under check is another important factor that helps improve consumer’s sentiment and enhance spending.

Fiscal Consolidation – Keeping the fiscal deficit under control is another significant challenge that the FM has to face. Although fiscal deficit at up to 3.5% won’t be of a big concern still the government would and should send the message that they are serious about fiscal prudence. In the past the FM has stated that the government is following a roadmap for fiscal consolidation which will have to be maintained. Fiscal target along with revenue uncertainty due or decreased GST collections, increased expenditure by the government and further need to enhance public spending together pose a unique challenge for the FM in Budget 2018.

Disinvestment – Government needs to pursue its disinvestment agenda aggressively in the Budget 2018-19. Expect the target for disinvestment to rise sharply with 36 state owned companies are expected to go on block for strategic disinvestment. The ball has been already set rolling with legal advisors being appointed and expressions of interest (EoIs) being invited for certain entities. Government expects most of these deals to fructify in FY18-19. Air India is one of the biggest disinvestment story that is going to unfold, some other companies that have been cleared for disinvestment are Pawan Hans, Central Electronics Ltd, HLL Life Care, Dredging Corp of India, Scooters India and more.

Boost Spending – The government is already committed to increase capital spending on infrastructure especially on railways and some other sectors. After the recent slowdown in economic growth due to demonization and implementation of GST a government initiative to enhance sentiments and confidence is the need of the hour. Also private spending has remained weak over the last few years for a number of reasons because of the same an increase in public spending is probably unavoidable. Another significant reason why the government will have to boost spending is for employment generation. To achieve the same government needs to pump funds and reform employment-intensive sectors like manufacturing, food processing, real estate, banking, dairy farming and more.

Boost Revenue collection – With increase in government expenditure the FM will have to look for ways to boost its revenue through increase in tax revenue, non-tax revenue and capital receipts. This will have to be done without hurting the market sentiments in fact the challenge for the FM is to cut personal income tax rates, corporate tax rates, provide various sops and yet find avenues to increase its revenues. Dealing with uncertainty over indirect tax collection and falling GST collections by putting a check on GST evaders and other methods will also be a challenge for the FM. Expect the reforms process to continue which will also streamline government’s expenditures and let it save money and improve its revenues.