News APP

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  gplay

This article was first published 6 years ago  » Business » Why Budget 2018 won't be populist

Why Budget 2018 won't be populist

By Arup Roychoudhury
December 29, 2017 15:30 IST
Get Rediff News in your Inbox:

The extra borrowing implies Jaitley will have extra spending space in the Union Budget for FY19, the last full one before the 2019 general election

The government’s decision to borrow an additional Rs 50,000 crore in 2017-18 is likely to mean a fiscal breach, with Finance Minister Arun Jaitley unlikely to set a fiscal deficit target of no more than three per cent of gross domestic product (GDP) for FY19.


The extra borrowing implies Jaitley will have extra spending space in the Union Budget for FY19, the last full one before the 2019 general election.

Experts and analysts say the Centre might spend more on the rural economy and the social sector.

There could be sector-specific extra funding as well, to boost job creation.

However, the Budget won’t be stridently populist.

“If the FM decides to go for a fiscal deficit target of 3.2 per cent (of GDP) next year, instead of (the earlier schedule of) three per cent, there will be additional outlay for flagship schemes. But, I don’t think it will be a populist Budget,” said a former government official who helped draft a number of these in the past.

“Populist budgets don’t necessarily get you votes. That is something the government very much understands.

"The additional expenditure will be more on agriculture, irrigation, rural development, poverty reduction, rural housing and in infrastructure, like highways.

"Basically, schemes which will also result in job creation. It won’t be about freebies, for sure,” the person said.

The deficit target for 2018-19 should be three per cent as mandated by the Fiscal Responsibility and Budget Management (FRBM) Act, as well as the report of the panel on revising the rule; the latter was led by 15th Finance Commission chairman N K Singh. The government is still examining the FRBM panel’s report.

If one assumes a 11.75 per cent nominal GDP growth rate, taken by the Budget for the current financial year and the next one, the 2018-19 GDP will be Rs 1,87,84,912 crore. Three per cent of that means Rs 563,547 crore. Any additional 0.1 per cent deviation from a three per cent fiscal deficit means Rs 18,785 crore more.

Analysts spoken to by Business Standard say the extra borrowing could push up this year’s deficit from the budgeted 3.2 per cent of GDP to as much as 3.5 per cent.

If short-term treasury bills are extended beyond a year, it could further widen this.

The analysts agree that next year’s deficit could be around 3.2 per cent.

“The big focus next year will be on the social sector, health, education and like issues.

"I believe that while the Budget speech might have a populist tone, the actual Budget will be quite prudent, even with higher spending room,” said an official with the Confederation of Indian Industry.

The additional borrowing of Rs 50,000 crore is over and above the Budget Estimate of Rs 5.8 lakh crore for 2017-18.

At the same time, the Centre lowered its borrowing through short-term treasury bills by Rs 61,203 crore.

This has made the task of exactly calculating the fiscal deficit a bit complex.

The government had said on Wednesday there would be no additional borrowing, as the rise in market loans would be offset by decline in treasury bills.

Still, market borrowings, both gross and net, are set to rise by Rs 50,000 crore.

Photograph: Adnan Abidi/Reuters

Read all about Jaitley's final full Budget right here!

Get Rediff News in your Inbox:
Arup Roychoudhury in New Delhi
Source: source
Related News: Arun Jaitley, FY19, GDP

Moneywiz Live!