Growth revival is the question: Madan Sabnavis

Such a Budget raises the issue of whether the government can be expected to contribute to the growth revival process this year

Three things stand out in the interim Budget. The first is that the government can rein in the deficit at a pre-determined level, notwithstanding the challenging economic conditions. Tax revenue was lower by Rs 77,000 in FY14 from the budgeted amount. Therefore, a 4.1 per cent deficit looks achievable in FY15.

Second, the quality of this achievement provokes comment as lowering the fiscal deficit ratio to 4.6 per cent from 4.8 per cent at a time when revenues slipped could have been attained only through rigorous expenditure cuts. Non-Plan capital expenditure was lowered by Rs 30,000 crore from the budgeted amount for FY14, while Plan capital expenditure was lowered by around Rs 9,000 crore. Therefore, this cut of Rs 40,000 crore actually compensated for the Rs 48,000 crore of tax revenue loss for the central government (the balance Rs 30,000 crore would be borne by states).  

Third, social expenditure continues to be a priority of the government. While there can be a debate on its merits, the position taken is that the government would keep playing the role of a welfare state.

Such a Budget raises the issue of whether the government can actually be expected to contribute to the growth revival process this year. Such an approach runs the risk of discretionary expenditure being trimmed to balance the fiscal.

A slowdown in industry affects corporate, customs and excise collections and the final picture emerges only towards the end of the year. For FY15, the initiative to bring about growth has to rest with the private sector, which will depend on consumer spending as well as investment. For the former to work, inflation should come under control, while for the latter to fructify, interest rates have to come down. In fact, the entire thrust attempted to be given in a limited way by the Budget to industry through excise and customs  cuts work on the premise that interest rates move down to help spending on automobiles. Otherwise, the Budget is more tuned to getting the arithmetic right without compromising on committed expenditure — National Rural Employment Guarantee Scheme.

Madan Sabnavis
Chief Economist, CARE Ratings