Well, it certainly doesn't attempt to do so through fiscal stimulus. We have a fiscal contraction. The point is missed by commentators who have been salivating over various items of expenditure, especially the huge jump in investment in roads. These increases are fine. But, leaving aside the fiscal deficit shrinkage, even public investment doesn't show a rise- M Govinda Rao points out in an article today that capital expenditure as a proportion of GDP actually declines from 1.8% in 2015-16 to 1.6% in the coming year.
The question is whether private investment can compensate through a drop in interest rates. Govinda Rao points out that looking at government borrowings alone is deceptive.We need to look at public sector borrowings. This would include central and state deficits and borrowings of the Railways and the special purpose vehicles for infrastructure. When we put these together and compare with total household saving of 7.6 per cent, there's very little room for lending to the private sector. The implication is that a cut in interest rates by the RBI is not going to help a great deal. I would add: banks' capital position is under stress, despite the move by RBI to let them count various items (such as revaluation of property and translation from foreign exposures) as capital.
The bottom line: since neither public nor private investment will rise and exports have been going downhill, we can't expect the growth rate in the coming year to be any different from that in 2015-16. And that's if the world economy doesn't go downhill. The decision to stick to the 3.5% target may well prove a mistake- unless, as I said earlier, the government will allow the deficit to slide up later in the year.
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In my view, the budget evinces the trajectory to increase the investments indirectly i.e. through agriculture route. Increased income of the farmers (which in real sense is not incremental increase but bridging the income deficit of past few drought-prone years), would mean higher spending and circulation of money, which then can be deployed back to bottom of pyramid or else where in the economy. Indeed it is not only an indirect but also a relatively long path of assuring investment.
Having said that, the move, howsoever long is sustainable, particularly with prescience of plunge in global economy. A non-agriculture budget with global plunge would have been a more catastrophe and an agriculture budget with global plunge. Which cues that it is more of 'Defensive' budget than 'Offensive'. And did we had an option between Defensive & Offensive? Can we really run in quicksand or should we first opt to be out of quicksand?
Based on above, the budget seems logical, sustainable & strategic. And definitely yes, it endorses the very fact of having Modi's stamp.
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