Indian Union Budget 2017

Background

Economic indicators aren’t flash tbh. The government is expecting economic growth of 6–7 % (at least a percentage lower than forecast) due to the chaos of demonetisation, a drop in consumer and investor confidence, leading many to believe that government spending will need to play a larger role in the uplift. There was mention of a rail budget in a Modi press conference yesterday so it will be interesting to see what that entails.

  • Inflation has remained rather sticky at around 5%.
  • Fiscal deficit of about 3.5 % of GDP although given GST announcement later this this is expected to change.
  • Current account deficit down to 0.3 % in the first half of FY 2017 (1Apr to 31Mar in India).

Restoring confidence

While it is expected that as the effect of demonetisation wears off consumer confidence will rebound, investor confidence is slightly more stubborn and will involve changes to the way business is conducted in India.

In the tax mix- consolidating GST

A vast majority of workers in the Indian economy are employed in the informal sector — about 80% (as per 2012 figures). This means there is no easy way to ensure compliance in payment of income tax. Thus it falls on other easily enforceable taxes to raise revenue, like land tax and consumption tax.

Universal Basic Income

Flavour du jour indeed. I did not expect this to get much traction particularly given India’s population (high) and the sheer number of people who could be eligible for a UBI — I just didn’t think it would be financial viable. But it does seem that the government is serious about using the UBI to do away with a large number of State subsidies for poverty alleviation.

Defence spending — nothing to tell

Pretty self explanatory title really. Despite India’s neighbours growing their defence spending India has been able to do the same largely because of the immense burden of personnel wages. With almost 1.3 million people in the army whose wages need to be accounted for, little remains for capital expenditure and purchasing new equipment.

In Conclusion…

Well it’s hard to say really. This would seem to be a rather crucial one for the Modi Ministry and for Arun Jaitley but really the effects of demonetisation while bad have worn off and more people are erring on the side of giving the Pradhan Mantri (Prime Minister) the benefit of the doubt.

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Gaby D'Souza

Gaby D'Souza

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Econo nerd. Kitten-obsessed but it's validated by my other occupation - one of the editors-in-chief @econlolcats. Also tweets from @act_yen. Usual disclaimers