By Dr. R S Bawa and Dr. Rajiv Khosla
The Union Finance Minister will be presenting his fourth Budget on the 1st of February. However, this budget poses more challenges with demonetization in the backdrop.
Firstly, the date for the Budget has been advanced by one month which means that estimates will now be based on the data available only for first two quarters of 2016-17. Earlier, advanced estimates used to be released in February and included estimated figures for the first three quarters. However, advanced estimates for 2017 have been released in January, which means that they may not include some of the developments of the third quarter. Secondly, the fund allocation for Rail Budget will be intriguing. Thirdly, in the absence of plan and non-plan expenditures, it will be interesting to see how sectoral fund allocation is made.
Finally, in the wake of introduction of Goods and Service Tax (GST), assessment of revenue statements will be interesting to watch out for.
The election of Donald Trump as US President followed by a hike in the US Federal Reserve interest rate by 25 bps in December cast a negative outlook for the Indian economy. Firstly, it led to an increase in the dollar-rupee exchange rate followed by a flight of money from the Indian economy. Soon after Trump’s win, the Rupee started sinking and in November 2016, it fell 2.5%, the highest in the last 15 months. Similarly, foreign institutional investors withdrew more than Rs. 40,000 crore in the last two months.
Besides, the decision to cut crude production by the Organization of Petroleum Exporting Countries also had its ramifications. Domestic growth fundamentals such as the GDP, Index of Industrial Production, Purchasing Managers Index and balance of trade; also deteriorated in the third quarter compared to the previous quarter. Adding to that, the demonetization drive created economic pessimism.
Under existing circumstances, the challenge before the Finance Minister will be to push the demand for all kinds of commodities in order to improve manufacturing and put the economic cycle of production, consumption and investment back on track. Hence, a populist budget not only assumes political compulsion but rather it is an economic necessity.
Dr. R.S Bawa is Vice-Chancellor, Chandigarh University
Dr. Rajiv Khosla is Head, School of Business, Chandigarh University
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