Boost private consumption

UPCOMING BUDGET NEEDS TO RESET MEDIUM-TERM PRIORITIES, FOCUS ON HUMAN DEVELOPMENT

- JANAK RAJ

The Indian economy is passing through a critical phase. Apart from addressing the immediate challenges facing the economy, the upcoming Union Budget also needs to boost India's growth potential over the medium term by resetting priorities.

The following are some of the specific areas which the Budget could focus on.

First, the slowing down of private consumption is worrying, especially because if the slowdown persists, it will further delay the revival of the private capex cycle. It is, therefore, imperative to give a boost to private consumption. The forthcoming Union Budget will do well to provide a significant relief to the middle class, whose purchasing power has been eroded significantly due to persistently elevated inflation of the past few years without hardly any income tax relief. To make up for the loss in revenue, the government needs to focus on improved compliance. It is intriguing that only a small portion of the population (less than 7%) files tax returns.

Second, it is important to continue the fiscal consolidation process, not only to free resources from the rising interest burden but also to create the fiscal space for dealing with any future shock. Even after five years of relentless fiscal consolidation, the debt-gross domestic product (GDP) ratio remains elevated and requires further reduction in the primary deficit. Alongside, the government needs to continue to improve the quality of expenditure, as it has done in the past, to counter the contractionary impact of fiscal consolidation.

Third, historically, India has prioritised economic growth with a relative neglect of human development. Empirical evidence as well as the experience of many advanced economies suggest that human development plays a pivotal role in economic development. It is, therefore, imperative to place human development at the centre of policymaking.