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2019-2020 Budget.

! The Reader ! Jul 6, 2019

  1. ! The Reader !

    ! The Reader ! RaVaNaN







    Tamil Sangam Purananooru Literature Quoted About Taxation mentioned by
    Finance Minister is Exactly Fit For BJP Govt.

    "நுணலும் தன் வாயால் கெடும்"



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    Last edited: Jul 6, 2019
  2. ! The Reader !

    ! The Reader ! RaVaNaN

    Betting on foreign capital to pump-prime the Indian economy



    The second Narendra Modi government presented its first budget on Friday. This budget has to be evaluated in the backdrop of deceleration in GDP growth and rise in unemployment.

    According to the 2017-18 Periodic Labour Force Survey (PLFS) statistics, unemployment rate in the country was 6.1%, a four-decade high if previous Employment Unemployment Surveys (EUS) are to be compared. Another important concern in the Indian economy has been a worsening of terms of trade for agriculture. This means that agricultural prices have been growing at a slower pace than non-agricultural prices, putting a squeeze on farm earnings. Given the fact that agriculture employs almost half of India’s workforce, this does not bode well for aggregate demand in the economy.

    These factors had raised hopes in certain quarters that the government will increase its spending to boost growth, even at the cost of a slippage on the fiscal front. It has decided against any such move.

    Fiscal deficit as a percentage of GDP for 2018-19 has been maintained at 3.4% given in the interim budget presented in February. The projected figure for 2019-20 is also 3.3%.

    To be sure, some of this is window dressing, as part of government liabilities have been shifted to entities such as the Food Corporation of India. This caveat notwithstanding, it is this commitment to fiscal discipline which has to be seen as the cornerstone of this government’s economic doctrine. Clearly, the government expects to be rewarded for doing this. Parts from the finance minister’s budget speech give glimpses of such thinking.

    The government hopes to achieve an investment of Rs 100 lakh crore in infrastructure in the next five years. It is planning to liberalise foreign direct investment rules and is banking on sovereign wealth funds putting in money in infrastructure projects in order to achieve this. It also plans to increase government’s foreign currency borrowing through sovereign rupee bonds along with a deepening of bond markets and reform in long-term finance institutions. Most such goals entail an increased and deeper engagement with international finance capital, which is deeply invested in the idea of high fiscal deficit being an unambiguous bad.

    In theory, the idea that low fiscal deficit will lead to low inflation, which will help in bringing down interest rates, which, in turn, will lead to high investment (both foreign and domestic) and hence high growth sounds attractive. As is often the case in economics, textbook ideas might not lend them to reality so easily. An example can make this clear. International oil prices have an extremely important role in determining inflation, fiscal deficit and exchange rates in the Indian economy. This is because India imports most of it oil, the price of which it has little control over.

    Calculations which form the basis of decisions such as India making long-term borrowing in foreign currency or sovereign wealth funds investing into India can change drastically if there is a big movement in oil prices, thus affecting exchange rates, inflation and interest rates.

    Such external shocks, when they do come, can undo the gains of all the long-term pain incurred by the domestic economy to maintain low inflation, low fiscal deficit regime which is a pre-requisite for attracting big-ticket foreign investors, especially of the non greenfield variety. The short point is banking on such a strategy involves a gamble based on the assumption that the global economy will not face any major turbulence in the near future. Given the ongoing trade wars and growing United States-Iran tensions, the risks in such a gamble could be more volatile in the future.

    To be sure, there is an element of in-built political insurance for any government while taking such risks. If these risks do not affect the economy, the government can take all the credit for its achievements. If they hit the economy, it can blame external factors for its problems. A glimpse of this was seen in this government’s reaction to change in oil prices in its first term.

    The Economic Survey cited the example of South East Asian and Chinese success stories in economics while setting a target of India becoming a $5-trillion economy by 2024-25.

    Given the policy direction of opening up to the rest of the world for our investment requirements in the budget, it looks like we are heading towards the South East Asian way rather than the Chinese way. One should remember that this path also entails the risk of a financial crisis.

    Source: The Hindustan Times
     
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    ! The Reader ! RaVaNaN



    [​IMG]

     
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