Union Budget 2017: Post demonetisation, economists wish for public, infrastructure spending; other expectations

Sectors such as automobiles, cement, steel, paper, aluminium and fertilizers were also badly hit by demonetization and are the ones that require special attention in the upcoming budget, economists believe.

Written by: Chanchal Chauhan

Updated: January 26, 2017, 9:46 AM IST

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https://www.india.com/news/india/union-budget-2017-post-demonetisation-economists-wish-for-public-infrastructure-spending-other-expectations-1778450/ Copy

Union Budget 2017: After demonetisation hit Indian sectors, economists wish for public spending, other expectation from this year’s budget

New Delhi, Jan 24: Some of the renowned economists have listed their expectations from the Union Budget 2017 which will be presented on February 1 by Finance Minister Arun Jaitley. In the wish list, the economists have expected infrastructure push, public spending and a better investment on consumption-led growth as some of the priorities for the government for this year’s budget.

Due to the impact of Prime Minister Narendra Modi’s decision to demonetise the nation’s two high currency notes, the private investment is expected to stay passive. Apart from that sectors such as automobiles, cement, steel, paper, aluminium and fertilizers were also badly hit by demonetization and are the ones that require special attention in the upcoming budget, economists believe. The economists believe that the government should focus on higher public investment which will help the private sector investment. Economist Amartya Sen believes that the decision of demonetisation was not taken after considering all sides. “It was taken hurriedly without thinking of consequences. It will have adverse effect,” Sen said. So, the only way the government can make up to what the Indian economy already lost was to focus on the people and businesses that have lost more due to demonetisation.

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“Historically, an increase in public investment growth in India has been followed by a rise in private investment growth with a lag. This indicates that public investment does help in crowding in private investment. The government can support investment directly by spending more on infrastructure, particularly roads and affordable housing. This will also help raise demand for core sectors such as steel and cement. In addition, construction of roads and low-cost housing is highly labour intensive in India, which will help generate employment in the economy,” the CRISIL (Credit Rating Information Services of India Limited) report said.

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“Domestic consumption must be boosted by improving purchasing power, especially among the rural population and workers in the unorganised sector and smoothening transaction process in cash-driven sectors. This will help remove the short-term constraint of low capacity utilisation in the industry and pave the way for investment recovery,” it said.

The report also added that it is significant to have a constant pick-up in investments. Demonetisation might not have impacted outgoing investments as much but the new ones would have been kept in a state of suspension. The budgetary allocation also includes investment in railways and roads. The report also said that “independent regulators for specific infrastructure sub-sectors should be set up with the aim for speedier resolution of issues constraining private sector sentiments towards taking up newer projects.”

“While the development thrust will be on infrastructure, some rebalancing on social schemes could also be expected… The budgeted expenditure towards the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) for FY16 was Rs 38,500 crore, an increase by Rs 3,800 crore compared to FY15. It is expected that the Budget allocation would increase 10 per cent in Budget FY18,” the report said. “The challenges for the Budget this year are more formidable than they were in the previous year. There is no substitute to investment-led growth as opposed to consumption-led. A more prudent approach will be to select two-three high potential sectors for fiscal stimulus, agriculture being the most promising followed by small and medium enterprises,” said SBI’s economic research report.

The government will present the Union Budget 2017-18 on February 1, 2017 but will refrain from making any announcements pertaining to poll-bound states ahead of the Assembly Elections 2017. “Budget presentation on February 1 is a done deal, we will not make any specific announcement for poll-bound states,” a top source said.

Other Expectations from Budget 2017

• The post-demonetisation union budget is likely to be citizen-friendly to push the economic growth.
• The Budget might also focus on strategies to double farmers’ income by the year 2022. A farm package in the budget can also be expected to give a boost to the rural economy.
• The Budget is also likely to offer incentives and packages since demonetisation has suppressed the demand of various commodities and has also reduced flexible expenses.
• Prime Minister Narendra Modi’s Startup India programme may also get a boost with the industry department listing up tax allowances on employee stock options, unlisted securities and exchangeable instruments. Apart from this, the other initiatives by PM Modi such as Start-up India, Make in India might also get a mention in the Budget 2017.
• Demonetisation has hit the business in the second part of the third quarter and if the things aren’t balanced, it might continue to affect the business in January-March quarter too. Taking this in consideration, the budget is also expected to be business-friendly.
• The Budget 2017 is also likely to announce extensive cuts in income tax, both personal and corporate giving a boost to both consumer and business sentiment.
• Now that rail budget has also been integrated with the Union Budget, the government could focus on infrastructure.
• The Budget is also likely to focus on solar, wind power and highways and inland waterways.
• Digital and cashless is also expected to be a highlight of the Budget since these two have extensively been used since demonetisation. Concessions and incentives can be expected in digital transactions.
• Apart from this, Finance Minister Arun Jaitley already clarified the government would not impose tax on long-term capital gains.