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Editorial | February 2017

Budgeting in Disruptive Times

We do live in unusual times, where some of us may be justifiably inclined to call them disruptive times. Technologically, we may be close to achieving disruptions in IoT and AI; but politically, 2016 has been a year of black swans, what with BREXIT, US elections, and back home in India we see the curious case of an economy purportedly growing at the fastest clip in the world, but failing to create jobs. We have ended the year on a controversially high note of demonetisation, when we had our policy-makers turn disruptors. Disruptions have one thing in common amongst themselves, in that they do not follow precedents, and hence, do not offer themselves to analysis based on extrapolation of past experiences.

Thus in 2017, we have an external environment fraught with unprecedented uncertainties in which our politico-economic planning , better known as ´budgeting´, will get done. The icing on the cake of unknowns are two new factors of the government´s own making, namely potential introduction of GST mid-year, and preponement of budget session to February 1. These inject further complications in forecasting indirect tax revenues, and in estimating FY17 year-end numbers, respectively. There is also a looming revival in commodity prices, to contend with. Since nothing can be done by the government to change these realities, we can for a moment turn our attention on what could be the priorities for the government this year - the conflicting demands on the government´s resources, and how, if at all, can a balance be found among these expectations.

Job creation remains a top priority, and can be done relatively quickly by spurring huge investments into infrastructure building. By doing this, at least the jobs lost in the informal sector due to demonetisation can be recouped. More specifically, the government may feel compelled to provide succour to those sectors worst affected by the note-ban, namely SME´s and rural economy, through special targeted interventions. On the other hand, if the government wishes to nurture longer term economic growth, it has to stimulate investments by inducing consumption and pushing domestic demand, which can only be done by placing surplus disposable income in people´s hands, through tax reforms, which in turn will have adverse implications on revenue growth. Another, more interesting imperative of the budget-makers would be to take badly needed follow up actions to curb corruption and eradicate black money, in order to bring some semblance of respectability to the motives behind the so called exercise of demonetisation. And, the most interesting and ´revolutionary´ options in front of the government is introduction of Universal Basic Income (UBI), which could be a tempting social intervention with its own costs and challenges. All these items on the ´wish list´ are as diverse and conflicting as can be, and perhaps one of the solutions in front of the finance minister is to dilute the lakshman rekha of 3/3.5% of fiscal deficit, so that he can satisfy more of these demands. Unusual times call for unusual fiscal policy exceptions.

Most disruptive forces are just disruptive, and not transformational. In the face such complexity in planning both revenues and expenditure in our budget, the moot question is, are we going to have a budget that is miraculous, or commonplace ? Is it going to go down in history as a Budget most extraordinary, most transformational, or is this budget going to remain unsung as a budget most ordinary, in extraordinary times. We do not have to wait too long to know!

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