Spend more, yet cut taxes: Odd advice to Finance Minister on Budget 2020

Both states and industry in their meetings with Sitharaman and the PM  have made out a case for relaxing the fiscal deficit target which for 2021 was slated to be 3 per cent.

Published: 12th January 2020 02:18 AM  |   Last Updated: 12th January 2020 11:17 AM   |  A+A-

Finance Minister Nirmala Sitharaman

Finance Minister Nirmala Sitharaman (File Photo | PTI)

Express News Service

NEW DELHI: As Finance Minister Nirmala Sitharaman gets into a last-minute huddle with her advisors on the one hand and Prime Minister Narendra Modi on the other to draw up the most crucial budget that the NDA government has delivered so far, independent advice to both the PM and the FM on the budget which could turn around India’s economic fortunes seem to have concentrated on spending more while cutting taxes, two contradictory goals.

Both states and industry in their meetings with Sitharaman and the PM  have made out a case for relaxing the fiscal deficit target which for 2021 was slated to be 3 per cent. Economists have made out a case for pump-priming the economy by splurging on both physical and social infrastructure projects that could create jobs and kick-start a virtuous cycle of demand being fed by higher output, and in the process revive economic growth.

Kerala’s  Finance Minister Issac Thomas, in a tweet after a pre-budget meeting last month, said: “The biggest take home from the pre-Budget discussion of FMs is (the) suggestion to raise fiscal deficit limit to 4 per cent.”

Relaxing the fiscal deficit would, however, push up the public debt, which already stands at roughly $1.27 trillion, something which many other economists including Gita Gopinath of the IMF are not comfortable with.

While the Centre is unlikely to agree to such a drastic increase, it is likely to consider some amount of relaxation in any case as it could well find it difficult to raise the resources necessary to fund its budget both in the current fiscal and in the year ahead.

“The way out for the government is to tackle the demand side by relaxing fiscal deficit targets and increasing spending on NREGA, education, health, rural telecom and rural roads,” agreed Prof Arun Kumar, Malcolm Adiseshiah Chair at Institute of Social Sciences (ISS).

Another big take away from the discussions has been a persistent demands to either rationalise personal income tax or to increase the amount of standard deductions for the salaried class, to put more money into the pockets of the middle class who could then give consumption expenditure a push.

Most of the industrial barons representing apex chambers who met the prime minister and the finance minister separately seemed to have spoken in favour of the move which could spur a pick up the market which has seen a slowdown in demand of goods ranging from toiletries to automobiles.   

Whether the government will accept any or all of these advocacies, is, of course, something which only the budget to be presented some 20 days later can reveal. 

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