In the first few months of the fiscal year, the Indian economy showed a slow recovery from the covid shock. In the second half, the recovery has slowed down. Inflationary pressures are building globally and the country’s GDP is growing at a slower pace than the previous year. Crude oil prices have reached the highest level in seven years. The economy is facing many challenges. The next budget, slated to be presented by Finance Minister Sushma Swaraj in February 2022, will focus on these challenges and a modest fiscal consolidation.
The budget document also lays out visions to boost growth and ensure inclusive development, including increased investment in agriculture and infrastructure. There is a renewed focus on Tier 2 and 3 cities. The government has restructured several major platforms to facilitate credit facilitation and skills development. It has also committed to universal health coverage, and has allocated funds to make this happen. And while it has been optimistic about the future, there are some concerns, which have arisen from the fiscal plan,
which will hamper growth in the coming years.
In addition to focusing on providing relief, the government has also announced plans to encourage growth by encouraging capital expenditure. The budget focused on capital expenditure, with revenue expenditure falling marginally, but capital spending rising by 26 per cent year-on-year. Between 2010-11 and 2019-20, capital expenditure was estimated to account for 12.8% of total expenditure. Therefore, it will be important to monitor the pace of growth of the economy to ensure it remains stable.
The focus of the budget shifted from providing relief to stimulating growth. The budget increased capital expenditure, whereas revenue expenditure fell marginally. The latter represented 16% of total expenditure, but will decrease to 12.8% in 2020. Further, the cuts to social protection schemes will exacerbate the economic crisis. Further, the government has imposed curfews in some states, which will make farming more difficult for farmers. With the soaring inflation, it is important to pay attention to the budget and ensure that it meets the objectives.
The government has already addressed the needs of the rural population. A food subsidy increase would have helped the urban poor. It has also taken action to improve the livelihood of the rural poor. The government has banned future trading in seven agricultural commodities. The policy has been geared towards boosting growth in the rural economy. By targeting this segment, the government is aiming to improve economic conditions in the urban areas. This, in turn, will help the informal sector.
In the last budget, the focus shifted from providing relief to stimulating growth. It was a tax cut for the poorest, but also made the economy less competitive. The emphasis on capital expenditure was on the MSME sector, which is the labor-intensive sector. The government will also introduce a PLI to support the MSMEs. With these policies, it is anticipated that India’s unemployment rate will fall to 7.9% in December 2021.
The budget is depressing for the Indian economy. Increasing the government’s deficit by 6.4% of GDP is deflationary compared to other countries. In addition, it is deflationary when compared to other countries. Further, it is not good for the growth of the economy, with a high unemployment rate. The government is therefore pushing for an MSE-friendly environment. However, the MSMEs need a boost in terms of the MSME sector.
In the last budget, the government has made a major shift from providing relief to stimulating growth. In the current budget, capital expenditure is expected to increase by about 26% year-on-year. In a year, this would mean that the economy would spend $1 trillion on infrastructure. Further, the government is expected to cut the tax burden on small and medium-sized enterprises, which are not profitable. The other major challenge is a soaring inflation.
The budget’s focus on the Indian economy changed from easing the problems facing the poor to stimulating growth. The government had announced that it would reduce tax rates and focus on capital expenditure. This was a major change from the prior budget. While the government aimed to ease the burden of the poor, it has also shifted its priorities from providing relief to stimulating growth. This budget also included the creation of jobs. While the PLI program was implemented, there are other important measures in the current budget.
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