The Prime Minister is reportedly meeting leading economists this week presumably to pick their brains for ideas and suggestions on how to go ahead handling the economy.
In the first week of January the next budget is just a month away. One wonders if the timing is not too late to incorporate any of the bright sparks that emanate from the meeting in the Union Budget. Generally, pre-budget consultations start way back towards the end of October for next year’s budget. The covid pandemic would have precluded any of that exercise this year.
Better be late, than never. It might still be possible to introduce some of the suggestions or at least soak up the nuances. At any rate, as an outside onlooker, what are the priorities and issues at hand at this point of time in the run up to the Union Budget. This is important because the Unit Budget is the most influential instrument which leaves its imprint on the functioning of an economy during the financial year and, maybe, for longer.
No doubt the top priority for the forthcoming budget would be the fiscal situation following the covid crisis. It has imposed an unprecedented burden on the government and its finances. A slew of stimulus measures and sheer support for the weakest and most vulnerable had to be launched. Income support for the poorest, augmented work schemes under MNREGA, special steps for farmers have all been undertaken which have cost money.
Two concerns are there:
First is the threat of prices rising too fast. Inflation rate has shown a quick step-up in recent months. Already headline inflation is well above RBI inflation targeting band. Even if, RBI does not embark on a inflation targeting policy immediately, the central bank’s hands will be restricted in introducing growth inducing moves.
The other concern might be the sustained inward flow of funds from overseas. These will have two major consequences. One, it will further aggravate the price pressure unless the funds are sterilised. The other is that the exchange rate would be under upward pressure. It will be of prime importance to keep the rupee exchange rate from appreciating now when the global market is facing fierce competition and trade volume is not rising much.
The Budget therefore will have to pirouette around these conflicting demands. But the principal objective should be to keep the growth pot boiling.