Union Budget 2018: Fiscal Prudence Vs Populist Budget

With several key Indian states going to elections in 2018, the government would worry about rural distress. The government will have to woo back the farmers and the rural population, especially the small businesses.

In doing so, it may not necessarily be able to walk the path of fiscal prudence. In all probability we will see the fiscal deficit being breached beyond the targetted levels of 3.2 per cent of GDP for 2017-18. Some see the number going-up sharply to 3.5 per cent.

However, what would eagerly be watched are the estimates for 2018-19. This would be the last full-fledged Union Budget for the present government and hence the government could dole out extra. While the middle class could be given some tax breaks, the agricultural sector could also be offered additional outlay and maybe even loan waivers.

Finance Minister, Arun Jaitley might project the fiscal deficit at 3.4 per of GDP for 2018-19. Increasingly, the increased outlay maybe towards the agricultural sector and also towards the infrastructure sector. These are the two areas that need a serious push. The infra sector largely to create jobs which is a desperate need of the hour.

On the other hand the government cannot ignore the farm sector, where there has been some distress lately. This may push the fiscal deficit a little higher. The fiscal deficit is a number that is eagerly watched by economists, stock markets investors and sovereign rating agencies. The ordinary man is least concerned with this figure, though for the nation and the economy fiscal prudence is a must.

It is going to be a difficult time for the government to balance the fiscal deficit, at a time when GST revenues are all but certain. One will have to wait and watch and shifting the goal post slightly, to gain economic momentum may not be a bad idea.