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Business News/ Politics / Policy/  The shadow of the global economy
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The shadow of the global economy

A slowing China, weak global recovery and crude oil estimated at around $40 a barrel in 2016 constitute the backdrop for Arun Jaitley's third budget

Arun Jaitley. Photo: Hindustan TimesPremium
Arun Jaitley. Photo: Hindustan Times

The International Monetary Fund’s World Economic Outlook says the pickup in global activity is projected to be more gradual, especially in emerging market and developing economies.

“Subdued global demand conditions have created a supply glut in many commodities. While the supply glut in oil has benefitted India, for industrial metals like steel, the impact has been negative (for primary producers) on account of dumping hampering domestic production. In response, India has hiked import duties, thereby supporting custom duty collections. We expect growth in customs duty collections to be 18% in FY16 compared to budgeted 10.8%" says Shubhada Rao, group president and chief economist, Yes Bank Ltd.

Lower oil prices mean a lower subsidy bill. Oil subsidy (for cooking gas and kerosene) is estimated at Rs.30,000 crore for 2015-16, nearly half of the revised estimate of Rs.60,270 crore for 2014-15. Economists say that amid some saving on subsidies, the subsidy-GDP ratio is expected to shrink to 1.5% in 2016-17 from 1.8% in 2015-16.

Samiran Chakraborty, chief economist, Citi India: “We reckon that the excise hike on petro products has incrementally contributed 0.6% of GDP to government’s revenues in FY16 and could add another 0.4% of GDP in FY17."

3 The US Federal Reserve raising interest rates could result in the flight of capital from Indian stock markets. “That is a big risk," said Sanjeev Ahluwalia, economic adviser with the New Delhi-based Observer Research Foundation think tanks.

Economists’ view

“The budget offers the finance minister an opportunity to take forward structural reforms and redesign India’s macro frameworks and institutions, at a time when commodity cycle and ample global liquidity remain in our favour," says Shubhada Rao, Yes Bank.

“The macro backdrop is tougher than last year. Although India’s macro stability parameters (inflation, current account deficit and fiscal deficit) have been in check, global economic growth is faltering. Domestic growth drivers, particularly private investment, rural demand and exports, are facing strong headwinds. Reinvigorating the growth aspirations without compromising on macro stability is the crucial balancing act that the FY2017 budget will have to achieve," says Samiran Chakraborty, Citi India.

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Published: 22 Feb 2016, 01:49 AM IST
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