Sitharaman’s 5-year plan: Focus likely on 2 key issues

Finance minister Nirmala Sitharaman’s maiden budget will set the stage for reforms over the next five years that could see structural policy changes in areas such as land, labour, capital and entrepreneurship to attract investment, offer incentives to boost consumption, and spend public money on social infrastructure for equitable growth, officials aware of the matter told the Hindustan Times.

The interim budget presented by Piyush Goyal on February 1, 2019, announced several popular decisions, this is being seen as a time for consolidation and to present a five-year policy road map that would boost sagging economic growth and address unemployment, two main concerns for the government, said the officials cited above who asked not to be named.

Boost Consumption:

While the upcoming budget may incentivise job-oriented private investment and focus on skill-development initiatives, the government is likely to persuade banks, particularly public sector ones, to slash interest rates in order to boost consumption, the officials said to the Hindustan Times.

It is likely that the Reserve Bank of India could further lower lending rates to provide more room to commercial banks for cheaper loans, they said. The central bank cut the repo rate to 5.75% on June 6, its third cut this calendar year.

“Private sector investment demand may also be stimulated through an interest rate reduction. To ensure that interest rates remain at a lower level, the government may adhere to the interim budget fiscal deficit target of 3.4% of GDP so that some investible resources remain available for the private sector at reasonable costs,” Dr DK Srivastava, chief policy adviser, EY India, told Hindustan Times.

Rural India:

The officials quoted above said the government will continue its policy focus on rural India and the same is expected to be reflected in the budget as rural development has immense potential to create both demands and jobs.

Srivastava said the government will be focused on the rural economy for boosting consumption.

“The main vehicle for this in the short run would be the income transfers under PM-KISAN, which would add to farmers’ disposable income, and in the medium term, the government’s productivity-enhancing efforts to double farmers’ income by 2022,” he said.

According to recently released official data, India’s GDP fell to almost a 20-quarter low of 5.8% in the last quarter of 2018-19, which brought down the full-year growth estimate to 6.8%, lower than the initial estimate of 7%.

The GDP that grew at 8% in the first quarter gradually dropped below 6% in the fourth quarter mainly due to a slump in agricultural and industrial growth.

Pension offer to the unorganised sector

The government’s recent pension offer to the unorganised sector is also expected to boost consumption, officials said.

“Supplementary support to disposable income would also come through a number of pension schemes covering small traders and retailers as well as farmers above 60 years of age,” Srivastava said.

Infrastructure:

According to experts, the government could undertake a major infrastructure expansion programme that could be partially funded through budgetary resources and partially though extra-budgetary resources.

Officials said the budget might take some key decisions to boost the real estate sector which could have a multiplier effect on the economy as it would spur demand for steel, cement and labour, particularly in the unorganised sector.

According to Surendra Hiranandani, founder and director, House of Hiranandani, the government’s “housing for all” mission was expected to accelerate the economy, provided the government incentivised the key stakeholders through direct and indirect tax measures.

“There is a significant expectation to cut GST rates to a single, standard rate, and not have multiple rates or taxes. The abolition of stamp duty or its incorporation under GST will be an added advantage. Relaxation in income tax slabs will also be welcomed as it will allow the salaried class to make further investments in real estate. The government must look at increasing the deduction limit under section 80C from the current Rs 1.5 lakh,” he said.