budget

Updated: Jul 03, 2019 10:09 IST

The first budget of the Narendra Modi government’s second term could focus on construction, services, and micro, small and medium enterprises (MSMEs), in an attempt to boost investment and create jobs, people familiar with the matter said on condition of anonymity.

Finance minister Nirmala Sitharaman will present the budget on July 5.

Economic slowdown and unemployment are the two biggest worries of the government and these issues will be suitably addressed in the budget, the people cited above added.

Construction is an obvious choice because of its multiplier effect on 269 industries, including cement, steel, paint, plastic, glass, plumbing and a range of services. Besides, the sector is the second largest employer after agriculture for both skilled and unskilled labourers, government officials and experts said.

According to officials, the budget is likely to be pragmatic rather than populist, which was the case in the interim budget that was presented on February 1, months before crucial general elections. It was in that interim budget that the government announced tax sops to salaried classes, a ₹75,000 crore assured income scheme for small farmers, and a pension scheme for workers in the unorganised sector.

The budget is also expected to focus on the management of water resources. Water management, or the lack of it, has assumed significance with several parts of India facing the very real prospect of a full-blown drought.

Officials said the government does not have money to splurge; therefore, every penny has to be spent in a meaningful way. The expenditure on flagship social sector schemes cannot be trimmed at the same time , the government cannot stray far from the fiscal deficit roadmap that it might strive to keep around 3.4% of the gross domestic product (GDP). Under these circumstances, policy impetus to MSME sector is expected that has tremendous potential to absorb unemployed population, besides accelerate the growth engine.

According to recently released official data, India’s GDP fell almost to a 20-quarter low at 5.8% in the last quarter of 2018-19, which brought down the full-year growth estimate to 6.8%, lower that the initial estimate of 7%. The GDP, which grew at 8% in the first quarter gradually dropped below 6% in the fourth quarter mainly due to a slump in agricultural and industrial growth. The government is also concerned about growing unemployment that also reflected in an official report released recently. According to the Periodic Labour Force Survey (PLFS) report for July 2017-June 2018, the unemployment rate soared to 6.1%. What is particularly worrying in the PLFS numbers is the big increase in unemployment rate among educated workers.

DK Srivastava, chief policy advisor, EY India said that construction, MSME and services sectors are prudent choices at present amid deceleration in the economic growth and volatile geopolitical situations. “In order to improve the employment intensity of growth, a greater emphasis may be [needed] on the services sector including construction, which has a relatively lower incremental capital-output ratio. While manufacturing can focus on strategic areas such as defence, it is constrained by a high capital-output ratio,” he said.

Srivastava said the share of services is increasing steadily in the global economy and the future supply of India’s working age population can be absorbed well in some of the service sectors such as health, education, transport and communications, information technology, financial services, real estate services and construction.

National Real Estate Development Council (NAREDCO) president Niranjan Hiranandani said the budget should provide policy support in easing liquidity crisis on both demand and supply side. “Quick address to liquidity squeeze, rationalization of taxes, National Rental Housing Policy and ease of doing business with sanctioning of approvals under one roof are priorities to resurrect the sector, which is one of major job creators and contributes 7% for country’s GDP growth,” he said.

“We have been always talking about ownership housing. There is a scope for rental housing that needs the policy support,” Hiranandani added.

Equity benchmarks Sensex and Nifty Tuesday notched gains for a second session in a row as investors remained optimistic about reforms push in the Budget. The 30-share Sensex settled 129.98 points higher at 39,816.48. The broader NSE Nifty too rose 44.70 points to finish at 11,910.30.