New Budget Should Foster Growth And Reform

There is a lot of anticipation about the budget this year. India is poised at an interesting stage where it is the only economy where it is being called in the bright spot in this world. And everyone is looking at what is India going to do to capture this opportunity.

With above 7 per cent growth, India is the world's fastest-growing large economy, if we go by the GDP figure calculated under the new methodology. Strong growth, however, is not felt on ground yet, with corporate results continuing to disappoint and private investment remaining weak. External conditions are also not in favour of India, with a slowing global economy adversely affecting the country's exports. So the current circumstance calls for the government to add fresh momentum to economic growth while reinforcing its pro-business image, and the Budget 2016-17 is likely to be used as a platform to achieve this.

If the Finance Minister is keeping awake at night, it is probably because he realizes that history is going to judge this government and the Finance Minister about whether they took the right decisions or not. The agenda for the FM is very clear; it needs to continue to induce the investment cycle and to help create demand - which means more money in the pockets of consumers. And on the flip side the finance minister is obviously worried about what happens to the fiscal deficit and its implications if India changes its approach on managing the deficit.

While boosting economic growth requires higher public spending, it is important that the Finance Minister does not deviate from the fiscal consolidation path, as such a move would have negative implications for the country's credit rating.

A few points that the ministry may consider:
- Encourage consumer spending through higher disposable income - Increase slab from 2.5 lakh to 3 lakh, HRA for non-metros like Hyderabad, Bangalore etc, enhance interest on housing loan from 2 lakh to 3 lakh
-Impetus to pro-growth programs - Make in India (land reforms and expanding location-based investment allowance to all states), Skill India (weighted deduction and simpler process), Digital India (ESDM)
- Infrastructure focus - Gross fixed capital formation has dropped from 34% to 31% of GDP. Infra-focused tax deductions to boost infra-building activity (success story of solar sector)
-Continue on path of 'Ease of doing of business' - Easwar Committee recommendations (lower TDS rates,), E-Governance (assessments, appeals, refund)

I feel that there are number of positives that are working for India. Clearly there are investments that are planned in the infrastructure area, there is the pay commission report which is going to put more money out in the pockets of consumers, and of course there is a commitment to increase the spending in the rural sector because of the stress that the rural economy has been facing over last two years.

With some prudent decision making on the issues that are bothering the industry and the investors, I think we are at a situation where India can truly zoom forward - of course, with a little bit of support from the political parties to push some of the really needed but outstanding reforms.

I think we are in a very exciting phase and all Indians are hoping that many of these expectations come true and we see a significant tailwind for the India economy in the next few months. Time for India to truly Stand Up!

(The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG in India)