Home >Budget 2019 >Opinion >Opinion | The pragmatic balance between maintaining fiscal discipline and growth

Macroeconomic stability, reflected in the moderation of inflation, current account deficit and fiscal deficit, has been one of the key successes of the National Democratic Alliance (NDA) government in its first term. Of these, the success story of fiscal discipline was seriously threatened this year with the shortfall in tax collections in the context of sliding economic growth. One wonders how the finance minister would balance between the competing goals of maintaining fiscal discipline and stimulating the growth impulses.

Evidently, the budget has achieved quite a pragmatic balance —by letting the deficit trajectory slip by half a percentage point of gross domestic product (GDP), but still remaining consistent with the Fiscal Responsibility and Budget Management Act.

At the same time, capital expenditure has been scaled by more than one-fifth. The ambitious disinvestment target of 2.1 trillion would, of course, be a key in achieving the fiscal target next year. The proposal to sell stake in Life Insurance Corp. of India (LIC), and other strategic divestment initiatives, shows that the government is gradually reducing its play in non-core areas, which is in line with the prescription of this year’s Economic Survey.

A provision of 22,000 crore has been made for equity infusion in infrastructure finance companies, which will be leveraged a few times over, to kick-start the ambitious National Infrastructure Pipeline of 103 trillion. Successful implementation of these infrastructure projects will be key for India to get back to the trajectory towards a $5-trillion economy.

One looks forward to the follow-up steps in monitoring and expediting these projects in the near-term, which can be a key propellant for breaking the growth barriers that we have seen in the past.

In addition to the spending boost, the changes in the personal income tax structure is another near-term positive from this budget, which will enhance the purchasing power of taxpayers at the bottom of the pyramid. In September, corporates were already given the option of availing lower tax rate by giving up on exemptions. The same approach has now been extended to income taxpayers earning up to 15,00,000 per year. Further, the removal of dividend distribution tax and extending the 15% corporate tax rate for new manufacturing companies and electricity generation companies are welcome steps, and will help in improving investor confidence.

The budget has also taken steps to expand the flow of foreign investment into India by increasing the limit for foreign portfolio investment in corporate bonds and by providing tax exemptions for investment by sovereign wealth funds in infrastructure areas. The latter can potentially be a major source of removing the funding constraint for the much needed infrastructure investments.

This year’s budget continues the government’s thrust on health and education. These initiatives will help in leveraging India’s demographic advantage in the long term. Not only has the government committed sizeable allocations for these sectors, it has also talked of an approach of partnership with the private sector in these areas with the government providing viability gap funding.

The skilling initiatives are also being tweaked to match the requirements of the industry, which should be the way going forward.

One must also commend this budget for remaining alive to some of the emerging, long-term trends, even while taking on the challenge of reviving growth in the short-term. For example, a provision is being made for fighting water stress in hundred districts.

Water scarcity is fast becoming a major long-term concern for India. The budget has a provision to incentivise state governments for improving the air quality in cities, which is another burning issue. It also makes a reference to the proliferation of technological disruptions, and seeks to leverage them for improving the delivery of government services and the ease of living.

Overall, it is a development-oriented and caring budget for an aspirational India—addressing both the short-term and long-term needs of the economy at this juncture.

Kumar Mangalam Birla is the chairman of Aditya Birla Group.

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