Nirmala Sitharaman
Nirmala Sitharaman

The finance minister has an uphill task up her sleeves. With the upcoming budget, she needs to establish long-term goals in line with the new normals. But, it can not be done without addressing the short term limitations.

The impediments are far greater this time around. India is expecting a 25-30% revenue shortfall in the current financial year. The fiscal deficit is also bound to shoot up to 6.5-7.0%. Almost double from the target of 3.5% set in the previous budget.

It has created twin challenges :

1) Support the post-pandemic economic recovery, and

2) Chart a path to bring the fiscal deficit to the pre-pandemic levels in the next few years.

The government's actions post-pandemic are giving a few hints about the direction of the budget. The Aatmanirbhar Bharat is expected to be the central theme. And, infrastructure and manufacturing are expected to be the major focus areas. Recent government actions have further boosted these expectations.

Post-pandemic the government has announced several incentives for these sectors. It includes stimulus for real estate, increased import duties and introduction of PIL schemes

Infrastructure: Efficient way to increase fiscal spending:

Focusing on infrastructure/construction will create multiple impacts. Construction is a crucial sector to generate sustainable employment and stable income. Through stable income, the infrastructure sector could generate income for bottom income groups. It, in turn, will improve demand and bring growth back in the economy.

This sector is important from the perspective of credit growth revival as well. The plan to build National Infrastructure Pipeline is already in progress. The government has allocated a budget of over Rs 100 lakh crore (split between the center, states, and private sector) over five years. The budgetary allocation to these projects will boost the confidence of the private sector to revive the investment cycle.

There has been an extensive focus on real estate post-pandemic. However, plenty of work is still required to reduce the inventory, speed up the under-construction projects, and bringing further affordability to the sector.

Pradhan Mantri Aavas Yojna (PMAY) has been effective on the ground. The budget could further extend the benefits of the scheme for the larger population.

Manufacturing: Crucial to the Aatmanirbahr vision:

Similar to the infrastructure, manufacturing is also crucial to Aatmanirbhar vision. It is the third-highest employment generating sector. And, it will warrant a major focus during the budget.

The government has extended its focus on manufacturing with new vigor post-pandemic. Series of incentives are announced in form of rising import duties and PLI schemes to boost this sector. Union Budget will need to lay out a clear roadmap for the implementation of the PLI schemes.

The budget will also need to incentivize local manufacturers to reduce dependency on imports. Recently, the government has increased anti-dumping duties or restricted imports of several items. It includes Solar cells, LED, LCD TV panels, Mobile phone parts, Tyres, fertilizers, telecom etc. There is a possibility of new additions to this list, especially the items imported from China.

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