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Budget looks bright, nevertheless sounds dubious

Budget looks bright, nevertheless sounds dubious
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Budget looks bright, nevertheless sounds dubious

Highlights

The common man is confused and is wondering about whether he should welcome the Union budget or not

The common man is confused and is wondering about whether he should welcome the Union budget or not. A close reading of the budget clearly indicates that it will not lead to higher consumption. Jump in the fiscal deficit would push prices up and adversely impact the ability of the country to attract foreign capital. Commodity prices have already started increasing and therefore the possibility of inflation cannot be ruled out. The signal given is that it will take some time before the fiscal deficit reaches the level of 4.5 per cent.

Many feel that this is the best possible budget under the circumstances arising out of corona pandemic which had shattered the global economy and hence the proposals are focussed on the expenditure side. Fine, but the common man who suffered most during the pandemic did not get any relief as there has been no change in the tax structure. As a result, it will not help in higher consumption.

The only benefits a taxpayer got is more to housing since the tax benefit scheme has been extended. The government has increased the capital expenditure but a big chunk of this will go to roads and railways. Finance Minister Nirmala Sitharaman proposed a development financial institution (DFI) to enable long term funding worth Rs 5 lakh crore in three years for infrastructure projects with a capital of Rs 20,000 crore. It may prove to be an accelerator resulting in higher investment as it may be used for lending in future. But then, it has its own limitations. It cannot drive the entire investment cycle.

Another important issue is that of jobs. While the unemployment has been on the rise year after year even before the pandemic had set in, many had lost jobs during the last one year. The capex will certainly lead to increase in demand for metals, cement etc and it can create some employment. But it will not be on a large scale. Another important aspect that needs to be seen is: Will the budget proposals help lift the GDP growth? Though the government has announced a capex of Rs 5.5 lakh crore, it will not be possible to accelerate the GDP, unless the private capex cycle recovers.

Another cause of worry is the prices of commodities. The fuel prices have been rising and the imposition of cess will increase the prices further. Hence the possibility of inflation rising appears to be a certainty. If the government had focussed its attention on measures that could have helped increase the savings rate, it would have been a great help for the common man. But on one hand, the interest rates on small savings were reduced sharply and on the other, the government refused to provide any incentive to the genuine taxpayer, majority of whom are from the middle and upper middleclass sections.

If some correction with regard to the savings rate was taken, it would have also helped the senior citizens who want to lead a respectful life after retirement. The Centre and the States will have no other option but to borrow more from the market and it will result in intrinsic pressure on liquidity. The philosophy behind the budget is academically correct but execution will remain a major challenge.

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