Siddhartha Sanyal: Every Budget needs to deal with so many expectations that by definition it is almost always a tightrope walk. But having said that, I tend to say that the broad performance of the economy is relatively good. Growth is improving, interestingly from the rural side where there was a lot of concern at some point in time, it looks like some of the indicators have started gradually improving.
Globally, the concerns around inflation are coming back a bit, but still, in the case of India, it is relatively better managed. The fiscal deficit has steadily come down throughout the last few years, also with the additional buffer that we have seen in the last few months, especially in the form of a decent tax collection or more so from the RBI surplus transfer, I think there is a bit of cushion in the hands of Honourable FM. Now, what will be very interesting to see is whether the particular additional resources that the government or FM enjoys at this moment, will be directed more towards immediate consumption boosting which will give some kind of an immediate boost to growth or they continue with some kind of support to their investment driven programmes. I think at this moment they can choose to go for a mix of both and they have the resources for that, that is the good news. So, I tend to believe that the broad nature of overall improvement in the quality of fiscal spending that we have witnessed throughout the last few years will continue. We are seeing a much higher share of capex in the fiscal maths in the last few years and my sense is that that continues. There is no urgency on the part of the government or the finance ministry to cut down their projected fiscal deficit or the borrowing number at this moment, possibly they can afford to take a call on that at a later date. But in general, with the additional resources, they will start to allocate it in some ratio both for consumption and investment and not focus too much on cutting the fiscal deficit right away.
When Nirmala Sitharaman as Finance Minister rises on the 23rd of July in Parliament to present the Union Budget this time, it is going to be her seventh time in a row. Last fiscal, she hit the fiscal deficit target of 5.6%. But now with the kind of revenue buoyancy that exists, how crucial do you think it is for the Finance Minister to spur consumption and perhaps by offering some tax sops to citizens? How crucial is it for the Indian economy at this stage?
Siddhartha Sanyal: I try to answer it in two parts. One part is in terms of boosting consumption and the other part is tax sops. I am much more confident and hopeful about the first part. The second part we need to figure out. In terms of the first part, I think that the focus is very…, given that the government has done a lot in terms of large ticket capital projects, I sense that there might be a renewed focus on a lot of small ticket items at this moment which touches millions of lives, make a difference at the grassroots level, make a bigger difference in case of the rural economy and provide a little bit of additional support given that that part of the economy has started turning around, it will be very very helpful if we can provide that additional support.
I sense that they will try to figure out how exactly they can provide that additional support. Not necessarily in the form of subsidies, I do not think that is the preferred route or there may not be much of a need for that, but some catalyst kind of initiatives, spending, etc, which can crowd in a little bit of additional private sector activity. The same is true in the case of a broader investment spectrum also the last few years we have seen a lot of focus on the part of the government to spend on investment projects, I sense that now they will be focusing a little more if there is any more low-hanging fruit left in terms of spending a little amount of money and spur a little bit of private capex because that is the part in the economy which is lagging and it has been a bit lagging for the last at least four-five years if not longer.
So, gradually, there will be a slightly more focus on that. That is my expectation in terms of their spending mix. In terms of the tax sops, it will be a pleasant surprise if we see something meaningful. But a little bit of support here and there is expected given that they want to move the needle to support consumption a little more.