By Sanjay Thapa

Edited by Madhavi Roy, Senior Editor, The Indian Economist

The Modi government is facing its first budget dilemma. To push government spending and spur recovery, or to cut it in order to bring down the fiscal deficit to the said 3.5 percent? The budget for 2015-16 will be the litmus test for PM Modi as well as the FM Arun Jaitely – not only in terms of assessing its performance in the previous year, but more so in charting the choppy waters, now that its own policy framework is firmly in place.

This will be the first full-fledged budget of the Modi government, without any strings attached. The previous one was, like it or not, under the shadow of the UPA. The major macro-economic policies were already more or less fixed, or rather had already been determined, by the UPA – like the
fiscal deficit target, the growth rates, the inherent inflation worries, and even the subsidy levels as well as disinvestment proceeds. Even as the Modi government presented its Budget 2014-15 by July, it was just an eyewash – with several ‘back-of-the-envelope’ cosmetic touch-ups in the name of the cleaning of river Ganga,’Swachh Bharat’, smart cities, and a dab of welfare proposals for the aam admi, and an incessant trade on ceasing the flow of black money, all this to show its concern after its clean sweep in the Lok Sabha polls.

Hence, there hangs a big question on whether the PM Modi’s promises of aam admi welfare
programmes will face an axe. The economy apparently needs a critical push in terms of capital spending in order to gain the recovery momentum. The RBI’s recent cut in repo rates by 25 basis points is just a start. The cut is expected to generate a first of the cycle of cuts, and thus – may be, a cycle of much needed pushes for the economy to get back on the rails. The headline inflation rate in down – apparently, the manufacturing sector has emerged out of the woods clocking a positive growth, fuel prices are abysmally down, and thus saving a lot of forex as well as OMCs under recoveries, and  the government’s fuel subsidy bills. Moreover, the stock markets have emerged out of the year-end blues and is bullish again. Hence the budget will be seen as a big event, which has the potential to either make or break the recovery.

But watch out for any concessions coming for the middle-salaried class in terms of income tax concessions. As promised by the BJP manifesto, it wants to bring succour to the tax payers by increasing the exemption levels from the current ₹2.5 lakh per annum to ₹3 lakh or even ₹5 lakh, or for that matter by revising the tax slab at ₹5 lakh, ₹10 lakh and over ₹10 lakh. Having covered the annual budget exercise for the last 20 years on this take – I can only say — this remains to be to be seen.

On the revenue side, the government has yet to see the outcome of the 2G/3G telecom license auction, which has once again got into a spin with the 3G base price fixing controversy. This apart from the fact that the disinvestment targets that the budget estimates levelled at more than ₹60, 000 crore for this year is still pending. Even though the government has convinced the stirring Coal India unions as well as earmarked its other disinvestments in PFC and REC etc., how it times its actions to reap the maximum benefits from the stock markets as well as fill the government’s kitty will have to be seen.

SANJAY THAPA is a senior editor and a TV/Radio commentator with over 20 years of experience in covering macro -economy, politico-eco & finance policies. He has been associated with leading media houses like India Today, Indian Express, and Economic Times as well panellist and anchor at seminars and panel discussions in DD and AIR NATIONAL. With a Master’s degree in Economics with specialisation in ECONOMETRICS he initially worked as SW ENGINEER at India’s leading IT MNC before he decided to switch to his much loved passion for journalism – which in fact started during his SENIOR CAMBRIDGE school days in Doon.  Besides Economics he is an avid music aficionado and finds much pleasure in playing many musical instruments.

Posted by The Indian Economist | For the Curious Mind