Jaitley to present Union Budget 2016-17 in Parliament today

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Feb 29: Finance Minister Arun Jailtley is going to present the Union Budget in Parliament at 1100 hrs today with all eyes on how he would strike a balance between containing fiscal deficit and  step up public spending  for reviving economic growth.

It is likely that he may deviate from the medium-term fiscal consolidation path to create space to  step up public spending and earmark funds to cover liabilities imposed by  the pay panel. The roadmap, laid down by the Finance Minister in the last budget, envisages 3.5 per cent fiscal deficit target for 2016-17, down from 3.9 per cent in 2015-16. While the Government is confident that it can meet the fiscal deficit target for 2015-16, the question of sticking to the consolidation path has been left open. The Economic Survey 2015-16, tabled by Mr Jaitley in Parliament on February 26, makes a strong case to push public spending to boost domestic demand at a time when private investment is not coming and exports have fallen. The agriculture sector, too, is under stress due to less than normal rainfall. Explaining the exigency to loosen fiscal policy, the survey said, ?The  Seventh  Pay  Commission  has recommended that government wages and allowances be increased significantly. Full implementation of this pay award?which the government will decide on–would add about 0.5 per cent of GDP to the Centre?s wage bill.? It added, ?Public investment may need  to  be increased further to address a pressing backlog of infrastructure needs. Such an increase would merely return spending to its 2010-11 level of around 2 per cent of GDP, well below the level in other emerging markets. ?Considering these factors, the Centre?s deficit could swell substantially. As a result, achieving the original could prove difficult unless there  are  tax  increases  or cuts in expenditures. There is some scope to increase receipts from disinvestment and spectrum auctions  to  realise  which  will require effort,? it added. The survey also punched holes in the argument that the sanctity of fiscal deficit target must be honoured. ?Even the desirability of a strategy of aggressive fiscal  consolidation  could be questioned. This is because the current environment is fraught with risks, which threaten all the engines of India?s growth,? the survey said. ?It would consequently seem important for the government to ?purchase  insurance? against these downside risks — rather than reduce fiscal demand significantly and take the chance of precipitating their  realization. Data uncertainty reinforces the need for purchasing insurance,? the survey  emphasised.

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