WILL THIS BUDGET SPUR GROWTH? IF YES, HOW? IF NOT, WHY NOT?
Only mild support to growth via tax concessions to the small taxpayer, rural spending and increased capital spending
The consumption and government expenditure stimulus will help growth, but the private investment and credit growth slowdown will take time to reverse
Measures for improved consumption and investment expenditure, coupled with lower market borrowing can spur growth
In light of the slowdown in GDP growth after the note ban, the Union Budget for FY2018 has made a concerted effort to stimulate economic activity, through a combination of modest tax cuts and higher spending, particularly on productive sectors such as transport and rural infrastructure, which have a healthy multiplier impact. The reduction in the corporate tax rate for firms with a turnover below Rs 50 crore to 25 per cent from 30 per cent will improve their competitiveness and level the playing field with bigger firms
Achieving higher growth and at the same time sticking to FRBM targets was always challenging. In the past, we have seen that while the fiscal deficit target was achieved as per the FRBM, capital expenditure (as % of GDP) declined. This year, even after relaxing the fiscal deficit target of 3 per cent, we see the capital expenditure target also up to 1.3 per cent from 1.1 per cent last year. This itself should spur growth. But, most importantly, the tax and interest incentives given to MSME and agriculture sectors, together with increase in credit allocation, should help achieve growth that enhances jobs opportunities. The only contradiction here is that the government itself says that industrial growth in FY18 will be much lower than in FY17!
It will surely spur growth because of its 24 per cent increase in rural outlay and push to agricultural incomes
Yes, it should help propel growth as investments are the central piece of this budget
Yes, the substantial increase in rural investment and tax breaks at the bottom of the personal income tax pyramid should boost demand widely, leading to a virtuous cycle of demand driving investment
Total expenditure growth of 7 per cent is not large enough to change our (Citibank) growth projections at the moment. However, if revenue growth surprises are on the upside, then there could be a further expenditure push