It's a tightrope walk for finance minister Arun Jaitley, as he presents the Modi government's last full-year Budget on Thursday.
On one side, indirect tax collections (GST) are dwindling, that too at a time when the government is looking to unleash the animal spirits in the economy. On the external front, the surge in crude oil prices has already put a spanner in the works, threatening to tilt the trade balance.
A higher oil import could push up the current account deficit in the second half ot the current fiscal. Rising fuel prices will push up inflation, which is likely to scale higher in the near term, thanks to the base effect. Add to that, a possible slippage on fiscal deficit and the government is surely on a slippery wicket.
On the other hand, Jaitley cannot afford to tighten the purse strings further. The signals from Gujarat, where the ruling BJP fared not too well in rural constituencies, indicate that all is not well with the farming community and it is a nobrainer that Budget 2018 will be loaded with goodies for the agriculture sector. Jaitley is expected to give some incentives to the salaried class, as he looks to drum up consumer sentiment.
With just a couple of days to go for the Budget, ET NOW takes a look at the state of the economy, and more importantly, the options before the finance minister. Here are some key suggestions from a special edition of ET NOW's India Development Debate:
PRESIDENT, FORUM FOR STRATEGIC INITIATIVE
It is going to be a tightrope walk. It is a wrong time to provide fiscal stimulus. There is seasonality in tax collection and we are seeing lower activity. Overall, there are still three months to make up for the shortfall in disinvestment proceeds. There is already a commitment to raise capital expenditure and that must continue. We still need to put government expenditure on infrastructure. I expect some announcements to alleviate the distress in the agriculture sector.
CHIEF ECONOMIST, AXIS BANK
Ithink there will be a little slippage. They are actually borrowing more than the budgeted amount. The market remains very uncertain about the scope and the nature of borrowing, although borrowing in cash gives the government some buffer. They have to show a higher fiscal deficit. Most of this year is gone. The crux of public expenditure is going to be concentrated entirely in 2019, mostly on the capital side.
MONEY MARKET EXPERT
The market is clearly reacting to the fact that the government is borrowing more. There is a shortfall in demand. There is so much uncertainty in GST collections. Current account deficit and fiscal deficit are the big questions. Micros are looking better, but there is a threat on the macro front. We will show higher fiscal deficit. Much depends on where oil price are going to end this year.
CONSULTING EDITOR, ET NOW
The farm sector does require attention. Some increase is unavoidable. We are not arguing for fiscal profligacy, but for pragmatism. We are yet to see private corporations walk the talk. The economy needs a slight push and a marginal slippage of the right kind is fine. The FRBM panel has recommended that whenever there is structural reforms the government can take a cushion of 0.5%. Fiscal deficit targets should have been achieved a decade ago. It is a risk that we should take now.