Focus on Economy, Not Deficit

This year’s budgetary exercise needs to deal with four specific challenges: (a) the macroeconomic context, Indian and global, (b) expenditure priorities, (c) the revenue stream available to finance such expenditures, and (d) fiscal sustainability. Though the issues are the same ahead of every budget, they are in particular major challenges before the 2016–17 union budget.

India is a “bright spot” in the world according to the multilateral institutions. One is unsure whether that is of any comfort when it comes to planning for the budget. The Central Statistics Office’s (CSO) advance estimates place gross domestic product (GDP) growth in 2015–16 at a higher than expected 7.6%, but even the CSO numbers say growth has been decelerating since the first quarter (April–June) of 2015–16. On the domestic demand front, the observations made in the Sixth Bi-monthly Monetary Policy Statement, 2015–16 of the Reserve Bank of India (RBI) are worrisome. The statement highlighted the fact that there has been a weak investment demand and deficient monsoon of the order of 23%. On top of it, we have a grim global economic outlook characterised by slowing growth in emerging market economies (EMEs), bleak prospects for export demand, depressed commodity prices and extremely volatile global currency markets. Given this overall weakening of economic activity and negative sentiments, the critical challenge would not only be to change the mindset through appropriate policy action but also for budgetary arithmetic to arrive at a realistic GDP growth number for projections of key fiscal variables for 2016–17.