Single biggest challenge India faces

with respect to macro-economics.

The path of fiscal consolidation in the coming budget and use off-balance sheet
methods such as bond sales by quasi-sovereign entities and asset sales to pump-prime
public spending. Many of the economist say have commented that the backdrop of a
chorus of calls for the finance minister to relax his target of curbing the fiscal deficit
to 3.5% of gross domestic product (GDP) in the coming year to boost spending

budgets in India have lost their importance to a large extent since the, nineties, as
both our indirect and tax policies have moved broadly to the same standards as Indias
peers in Asia. with the only differential coming in top-line tax rates. Further, state
governments cumulatively spend more money than the central government, putting
another dent on its importance. While media tends to get very excited about the
exercise, a lot of it now is basically about policy advocacy and outlining specific
measures that the government intends to take in the next fiscal year.

The government has taken several steps in reforming state expenditure. Apart from
increasing public investments, the move to prioritize direct cash transfers for certain
subsidies is praiseworthy, and India is currently running one of the largest functional
cash transfer welfare systems. I do not think many expect the government to lose its
focus on improving the quality of expenditure.

Hence, the challenge is on the revenue side. Despite the windfall gains from oil and
persistent hikes in excise duty to shore up revenue, the government seems to be much
less innovative when it comes to raising its revenue.

Another initiative that can be further strengthened by the government through the
budget is boosting financial savings. With the Jan Dhan Yojna and the universal
insurance scheme, the government has moved in the right direction. This can be
further strengthened by perhaps introducing small savings bonds, where the
government should be willing to pay a higher rate of return initially, capped at a
certain amount, in order to facilitate higher growth in financial savings.
QUESTIONS

1) What is the current position of Indias economy?

At the current juncture, Indias fiscal position is very healthy. Despite the talk of
a sluggish economy, Indias fiscal stance has been turning positive, and
productive government expenditure is rising. In such an environment, the big
judgement that the finance minister needs to make is whether his commitment to
fiscal consolidation is worth giving up for an additional spending of 0.2% or
0.3% of GDP, which would basically be around $4-6 billion. My own
prescription would be to stick to fiscal consolidation in the coming budget, and
use off-balance sheet ways such as bond issuance by quasi sovereigns to pump-
prime public spending.

2) what are the big steps that needs to be taken in india by the PM for
the reforms in india regarding the public investment and other
investments?

I think several other measures on agriculture, labour and industrial policies may
continue to come through in 2017-18 as the government sees a better economic
backdrop to get a buy-in for more dramatic changes. Operationalizing the
National Investment and Infrastructure Fund will be a landmark event, as it will
pave the way for a structured way to get foreign institutional money to invest in
our infrastructure projects. At the same time, ensuring that the bankruptcy code
has teeth and is able to resolve the non-performing asset (NPA) situation in the
banking system will be critical as well.
RBI macroeconomic
report lowers GDP
forecast to 5.7%

SNEHIL SETHI
1520437
2BBA -D