Government To Go For Growth In Budget, Accept Bigger Deficit: Poll

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Bengaluru: India’s government is expected to unveil a budget on Wednesday aimed at boosting economic growth through additional spending, with borrowing seen rising to 3.3 percent of gross domestic product in the coming fiscal year and 3 per cent in the year after that, economists polled by Reuters say.

Median forecasts ahead of Finance Minister Arun Jaitley’s budget are broadly in line with figures discussed over the past few days, with deficit forecasts ranging from just under 3 per cent to as high as 4 percent for the coming two years. The poll was conducted January 27-30.

That will effectively delay by a year an earlier plan of bringing the fiscal gap down to 3 per cent of GDP in 2017-18 from the current 3.5 per cent budgeted for this year.

Twenty-four of 36 economists surveyed said the government’s key theme in the budget will be to use additional borrowing to support growth.

Possible measures include reducing personal income and corporate tax as well as higher public investment.

Only four economists said the government will choose to dish out more subsidies, while the remaining eight said fiscal consolidation will be the theme.

The 2017-18 budget comes less than three months after Prime Minister Narendra Modi’s bold and risky gamble to outlaw high-value old currency bills, which has slammed the brakes on Asia’s third-largest economy and hit the poor particularly hard.

With uncertainty over how quickly the economy will recover, economists say the new budget is likely to echo what India has become accustomed to in the past — expansion of spending programmes rather than fiscal restraint.

“As has been the case at times in the past, we think that the government will have to tread very carefully between the need for stimulating demand in a weak economic environment after demonetization and continuing on the path of fiscal consolidation,” wrote Nupur Gupta, economist at Goldman Sachs.

“We expect the government to budget for a fiscal deficit target of 3.3 per cent of GDP, 30 basis points higher than planned in the government’s medium-term fiscal consolidation program.”

While Standard and Poor’s has warned India needs to maintain its fiscal consolidation path for any prospects of a ratings upgrade, Mr Jaitley is under pressure to boost growth after the government’s shock decision in November sparked a cash crunch.

A recent Reuters poll predicted that Asia’s third-largest economy lost considerable momentum in the final three months of 2016 after the move dented consumption and business confidence.

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