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Expect big announcements in Budget related to infrastructure

Government can undertake bold reform measures as it will have a much larger fiscal headroom to manoeuver

Ranen Banerjee  |  Mumbai 

The presents a very robust scenario in the immediate term for the Indian This augurs well when we are still in the first year of the term of government.

The government can undertake bold reform measures as it will have a much larger fiscal headroom to manoeuver. The headroom is likely to be created through higher growth rate of economy, low oil prices, and better targeting of subsidies.   
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Borrowing the word ‘trinity’ from the Economic Survey, there seems to be two trinities at work that could aid in putting the India story in a virtuous cycle. The first trinity is ‘3C’ - lower current account deficit, higher domestic consumption and muted commodity prices.

The second trinity mentioned in the survey itself – ‘JAM’- Jan Dhan Yojana, and Mobile phones. The survey states that reduction or phasing down of subsidies is not desirable but has laid emphasis on better targeting. The JAM would aid in better targeting of subsidies leading to lesser outlays on them by way of plugging the leaks. A combination of these two trinities will provide larger legroom for capital expenditure that will further feed the growth momentum leading to higher revenues for the government to make investments in the future - a virtuous cycle! 

The survey however has also highlighted the risks to the primarily from external factors – a possible increase in interest rates in the US, developments in Greece and its ripple effects and constrained economies of the oil exporting countries. 


We must commend that the has highlighted the key areas of improvement that the Government should focus upon. These include the need for skilling India to support Make in India, labour reforms and quality of primary education.   

Given the likely availability of the headroom in the immediate term, we can expect big announcements in the related to infrastructure investments combined with some populist measures on the income tax front too. We hope that the Government will be able to use this window of opportunity to pull the take-off lever for India to fly with RBI possibly adding some tail wind by way of rate cuts.
 
The writer is an executive director at PwC India

First Published: Sat, February 28 2015. 10:25 IST
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