Millennium Post

Economy in comfort zone

Economy in comfort zone
As the government is gearing up to prepare and present a new budget, the available economic indicators point to an improving fiscal environment that may lead the budget to bring in more economic reforms and fresh stimuli to attract both private and foreign investments. In a gloomy economic environment, the government has no option but to come out with a populist budget but when the economic environment is positive and robust, it is easier for the government to introduce reforms and provide incentives to businesses. The first indication of a positive economic environment came from different agencies including the RBI and the World Bank, which put the Indian GDP growth for 2017-18 at 6.7 per cent and expected it to grow by 7.3 to 7.5 per cent in 2018-19. By all indications, Indian GDP growth rate will overtake that of the Chinese in 2018-19 and that will make India the fastest growing economy in the world, a tag that will further help the nation attract foreign investments. What India desperately needs is to sustain its economic growth in the years the come. The current buoyant mood of the economy sets off much of the despondency and gloom that it went through in past years. The disruptions caused by demonetisation and introduction of GST are finally settled and the economy again looks bracing for a new spell of growth and consolidation. The decision earlier made to divest stake in Air India and 100 FDI in single brand retail shows that the government finally finds itself in a comfortable situation and can undertake reforms and introduce fresh stimulus to support the economy. In this backdrop, it is interesting to watch out for the upcoming budget, which is likely to introduce more revenue-generating measures. On Wednesday, the Central Board of Direct Taxes (CBDT) said that the direct tax collections in the current financial year till January 15 had risen to 18.7 per cent to Rs 6.98 lakh crore. With more than 10 weeks remaining in the current financial year, the direct tax collection represents 70 per cent of the Rs 9.8 lakh crore target. The government had earlier planned to borrow Rs 50,000 crore from the market to tide over its budgetary deficit but in view of better-than-expected direct tax collection, it slashed its market borrowing target by 60 per cent to Rs 20,000 crore. Market analysts apprehended that higher direct market borrowings may lead to higher fiscal deficit beyond the budgetary estimate of 3.2 per cent of the GDP. But, the Centre does not see the need for higher direct market borrowings as it is flush with cash with better direct tax mop-up and GST collections streamlining earlier than expected. The government is also expecting to mop up Rs 90,000 crore from disinvestments, the most significant one being the stake sale of Hindustan Petroleum to ONGC, which is expected to bring Rs 30,000 crore to government exchequer. Last year, the government earned Rs 46,247 crore from stake sale in public sector undertakings, which is likely to double this year at Rs 90,000 crore. In the next financial year, the government is eyeing Rs 1 lakh crore from disinvestment. Riding on these positive economic indicators, the financial markets have been showing a bullish trend over the last few months. On Wednesday, the sensex of Bombay Stock Exchange broke the 35,000 mark and ended the day at 35,082, up by 311 points from the previous day's closing. The sensex took less than a month to rally from 34,000 to 35,000 mark. The market analysts believe that the stock markets would continue to be bullish for now. The recent spurt in stock markets' sensitive indices has been attributed to the government's decision to slash its market borrowing by 60 per cent to Rs 20,000 crore. Other factors like Gujarat poll results and speculation of government slashing GST rates of 70 to 80 items in the next GST council meeting also helped market sentiments to improve and remain buoyant. On the same day, the Indian Rupee also strengthened by 15 paise at 63.89 against the dollar.
As the government has been able to set off negative impacts of demonetisation and GST and the economy looks back on track, the government is likely to pursue a more vigorous policy that creates more jobs, allocates more funds to its flagship programmes like those related to skill development and cleanliness, and silence its critics who have accused it of messing up and derailing the economy. But, the current state of optimism and growth need to be sustained and safeguarded by ensuring speedy policy intervention and a peaceful environment in the country.
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