Introduction

• Budget of the new government in the 17th Lok Sabha powerfully recommits to the vision guiding the last term emphasising continuity, individual empowerment and infrastructure for nation building, fiscal consolidation, discipline, and process improvements.
• The rural sector comes in for special attention, but even there the focus is on value addition and transformation rather than income transfers as the means to double farmer incomes.

Long term vision Vs. Short term constraints

• But in choosing the long view, there is hardly any discussion of the current growth slowdown, and how the Budget can contribute to alleviating it.
• This is a pity, because this is expected of the major macroeconomic policy statement of the government.
• Markets are looking for a big spending boost from the government to revive growth.
• But there are many aspects of the Budget that will contribute to reviving growth but unfortunately they are not brought out explicitly.
• The Budget is presented as part of the longer-term creation of a new India.
• The Indian economy will grow to become a 3 trillion dollar economyin the current year. It is now the sixth largest in the world.
• Five years ago, it was at the 11th position. In Purchasing Power Parity terms, we are in fact, the 3rd largest economy already, only next to China and the USA.

Macroeconomic stimulus

• The standard idea of macroeconomic stimulus is to announce a large increase in government spending without raising taxes. This raises deficits.
• There has been an active debate in the run-up to the Budget that given the slowdown some rise in deficits is acceptable in order to provide a boost to the economy.
• But the government is committed to a long-term macroeconomic framework and a path of deficit reduction. A deviation will hurt its credibility. 

• The Budget gives many examples of this government’s faster speed of delivery in infrastructure, such as road building or construction of low-income housing.
• Since the same government is back, it will be able to front-load expenditure on ready projects. The spending comes before taxes are raised and, therefore, is stimulatory.
• Apart from creating incomes it boosts demand for the cement and steel industries.
• Moreover, although the fiscal deficit ratio has come down from 3.4 in the interim Budget to 3.3, a larger share of resources are to be raised by privatisation. Since this does not reduce private demand as taxation does, there is a larger net expenditure stimulus which supports demand and growth.

Colletctively, a long term view would encpsulate the sustainabiltiy of the growth mometum while it may reduce the same in short term.