Budget could increase spending to lift growth

Import duties may be raised on more than 50 items.

NEW DELHI: The government is expected to raise spending on infrastructure and cut some personal tax in its 2020-21 budget, to spur consumer demand and investment, government sources and economists said.

Despite cuts in corporate taxes and monetary easing by the central bank, investments have failed to pick up.

Economists and inves-tors say fiscal stimulus in the budget and an increase in spending on roads, railways and rural welfare could revive growth.

A weak economy and the wave of anti-government protests have increased the chances of a fiscal stimulus in the budget, said Shilan Shah, an economist at Capital Economics in Singapore.

“That would provide a small boost to growth over the coming quarters, at the cost of putting upward pressure on bond yields,” he said in a note.

The central government looks set to miss its deficit estimates for a third straight year after estimates show revenue will fall short by nearly Rs 3 lakh crore.

Finance minister Nirmala Sitharaman, who will present her second budget to Parliament, could defer the earlier target of cutting fiscal deficit to 3 per cent of gross domestic product in 2020-21 by at least two years, government sources told Reuters.

This will be on top of roughly $28 billion of expenditure outlay from off-budget borrowings, as she seeks to keep the deficit in check.

Economists in a Reuters poll predicted the government would set a fiscal deficit target of 3.6 per cent of GDP for 2020-21, up from 3.3 per cent targeted for the current year.

Sitharaman is expected to announce a plan in the budget to invest Rs 105 lakh crore ($1.48 trillion) in infrastructure over the next five years. By then the government hopes to make India a $5-trillion economy, compared with $2.8 trillion now, government sources have said.

The budget could push privatisation and set a target of Rs 1.5 lakh crore, after missing the target by a wide margin this year, the sources said.

To boost domestic manufacturing, the budget is also expected to increase import duties on more than 50 items, including electronics, electrical goods, chemicals and handicrafts, targeting about $56 billion worth of imports from China and elsewhere.

Domestic investors expect some relief on income tax rates after a cut in corporate tax rates in last September.

Economists have warned the government against any “window dressing” of the budget and said it must come clean on estimates of revenue and growth and borrowing outside the budget.

“We will closely monitor the revenue assumptions to assess the credibility of the fiscal deficit target,” Sonal Varma, chief economist—India and Asia, at Nomura said in note.

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