The Finance Minister's Budget speech is likely to highlight the government’s decision to give states a higher share of taxes as an effort by the PM Narendra Modi’s administration to reset center state relations. While the government says the move is historic and will help provide an economic lift to states, economists believe the center will find itself constrained to spending big money to pump prime the economy. Sapna Das spoke with the Director of the National Institute of Public Finance and Policy (NIPFP) for more details.
The Modi government is likely to find itself in a difficult spot when it comes to giving a big push to public investment in the coming Budget. Experts say, with the centre agreeing to the 14th Finance Commission's devolution formula, resources within the Budget will be limited and a big spend on infrastructure to stimulate growth seems unlikely.
Rathin Roy, Director, NIPFP said: “What the PM's intention was to increase spending on national public goods like infrastructure because public private partnership (PPP) has not been working, there is a need to step up. We should go through the public sector route as well, but another route is just to increase the amount of fiscal resources from the Budget, devote it to public investment consistent to the fiscal deficit target.”
To balance its expenditure and remain within the fiscal deficit target of 3.6 percent, the Budget will have to focus on rationalising subsidies and affecting deep cuts in central assistance to state plans. Outlays to government's flagship programmes like MGNREG, may also see cuts. While on the revenue side, disinvestment target will have to be scaled up in a big way to generate resources. Even the borrowings of the centre in the new fiscal will go towards meeting revenue expenditure, and not, towards public investment, as advocated by the Chief Economic Advisor, Arvind Subramanian.
Rathin Roy, Director, NIPFP said: “It means either that we are going to have to see what we can do in terms of increasing revenues. Only scope left to do that is a sharply accelerated disinvestment programme and it is possibly the emergency actions that were taken in December to increase these investments. What this means is that the assumptions underlying the center's share of revenues will no longer be valid.”
Interestingly, the 14th Finance Commission has suggested relaxing the centre's revenue deficit targets under the FRBM act, by almost half a percent. On the face of it, this may allow the centre some breathing room for its revenue expenditure and probably also allow it to probably show, lower revenue projections next year. But then, this approach will bring down public investment, and the need to push investment in infrastructure sector, all the more.
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