Union Budget may announce support for rural economy: Experts

As far as the need for some welfare schemes is concerned, the need is more in the rural areas, the experts said

The upcoming Union Budget may announce some support for welfare schemes of the rural economy in the form of direct cash transfers or a social safety net, but any other direct consumption boost is unlikely, experts said.

“I don't think the government will give a consumption boost in the Budget. Looking at the government's fiscal strategy, they have resisted direct consumption boosts to the economy, and have moved more towards capex. Whether they will be able to increase the capex at the same rate as they did last year is a key question. The math behind the reduction of fiscal deficit is to lean on reduction of capex to some extent, even though I believe that capex will still grow faster than the GDP," said Dharmakirti Joshi, Chief Economist, Crisil said at Moneycontrol's pre-budget panel discussion on January 31.

As far as the need for some welfare schemes is concerned, the need is more in the rural areas because agriculture hasn't done well. Thus, there is a possibility of seeing some support for the rural economy, he added.

The support may come as direct transfers, or in the form of a social safety net as both have different implications. “The government will maintain its thrust on increasing the productive capacity of the economy, which is focused on investments,” Joshi said.

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DK Shrivastava, EY India's chief policy advisor, said that the budget will have to maintain interest on growth driven through investment prioritisation rather than giving a fillip to consumption expenditure.

“Between the two routes of consumption or investment, it is the investment route which is more relevant for India at the moment,” Shrivastava said.

As far as the overall target is concerned, the objective is to increase per capita income and then become a developed country.

“Government should recognise that there are certain constraints that are arising from the global conditions and there is a cost that is to be borne as we choose more and more capital intensive techniques. Infrastructure spending is also capital intensive. The more we choose capital intensive methodologies, employment situations will come under challenge. Government should recognise not only the possibilities and potentials, but also to lay out a realistic direction by recognising some of the challenges that the Indian economy would also address as we transition towards becoming a developed economy,” according to Shrivastava.

Meanhwile, Samiran Chakraborty, Chief India Economist, Citigroup said that in India's economic cycles the demand side used to move first and hit a ceiling on the supply side, because the supply side would not have expanded as much resulting in higher inflation, higher current account deficit, macro vulnerabilities.

“This time around, we're seeing the reverse where the supply side is expanding much faster. But there appears to be a problem of the demand side growing. The key challenge is how do we get this demand side growing in line with the supply side, then we will have a more credible and a stable equilibrium, which will make sure that we have a more sustainable long term growth strategy,” said Chakraborty.

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