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Economy is looking up

first_imgThe over-allocation in the revenue expenditure and contraction in the capital expenditure has forced the FM to be careful about the responsibility of raising capital expenditure first to generate employment and also to keep the inflation under control. After slashing corporate taxes the FM was confident that animal spirit would come back but with consumption, expenditure increasing the corporate has no point to commit the expenditure.This time consumption if made possible with fiscal deficit widened would have resulted in high inflation and credit flow is clearly dependent on the interest rate the situation was likely to be adverse. Hence the government has put a full stop to increase in the revenue expenditure. Rather FCI capacity to procure has also been reduced. The employment is the biggest issue and it is not being tackled diligently. The government has already exhausted the unconventional resources to keep the capital expenditure gracefully or what it found good within the constraints of FRBM.Even then the fiscal deficit is kept at 3.8 per cent and the one reason for this is the acute shortfall in revenue collection. The government could get a paltry sum of Rs. 18000 from the non-tax sources. In any case, the revenue collection was expected to be increased and hence before projecting GDP, it was important to increase the revenue which was expected to be generated with an increase in capital expenditure which has a strong multiplier effect. As the mobilisation of higher revenue could have come from easily meltable sources, it has focussed on LIC which has shaken the conscious of many readers. How far a slice of it can be eaten depends upon the resilience of the LIC.Govt is already using LIC in taking over the shares of many public sector companies but the return is made gradually which again raises the interest rate and finally impacting the revenue position. In order to avoid the burden on revenue, the Government wants to raise the capital and sell some portion in the market with IPO. It is not a bad situation. The decision is well-calibrated because the credit flow is not likely to change dramatically because the losses of NBFC are not going to be recouped and maybe some of the NBFC are liquidated. The banks are also reluctant to lend to NBFC looking to untidy business these are into. When about 13 per cent of the credit purveyor is gone then depending on the banks to pull all horses is also not wise thinking. The time has come that MSME who have been served by the NBFC should be linked to Banks to improve the quality and sustainability of MSME. Many MSME has been given big shock with demonetization and GST and their revival in a convoluted environment does not seem to be happening. Earlier the government has already increased credit lending under MUDRA. Farmers are free to take credit from all type of Banks in rural areas. The mushrooming of NBFC and their recognition by RBI is very new but the sector to which they were serving is already under heavy debt. Since any shinning comes back in the real estate seems to be remote.The government is soft with the banking sector and trying to tighten the governance so that a sudden outburst could not hurt the balance sheet. Definitely, some changes would be visible. Once tax administration and tax slabs under GST are taken care of the consumption could increase and along with capital investment, the things can once again turn up. But the government would have to be careful in revenue expenditure and revenue saving wherever it comes to notice.last_img read more