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    For Budget, only UP election matters, not Omicron or Fed taper issues: Swaminathan Aiyar

    Synopsis

    "There will be an attempt to cover the entire gamut of people and therefore it will be a soft budget. It will not be a tough budget attempting to get fiscal discipline back on track."

    Budget 2022: Swaminathan Aiyar shares his expectations and key themes likely in FM Sitharaman's speech
    "UP election is going to be a more important determinant of the Budget and Omicron than the global conditions than the quantitative easing issue in the United States. I would not expect a tough budget. I would not expect a tough stance.," says Swaminathan Aiyar, Consulting Editor, ET Now.

    Do you think that the Omicron wave and the impact it may have had on economic recovery and tax collections will weigh heavily on the finance minister?
    I will start by saying that the overwhelming issue which forms the background is the state elections, especially the Uttar Pradesh elections. This is going to be a more important determinant of the Budget and Omicron than the global conditions than the quantitative easing issue in the United States.

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    More important than all of these is the fact that they are really worried about Uttar Pradesh. It appears from the opinion polls that Akhilesh Yadav is catching up and although the BJP is way ahead – they won three quarters of the seats last time. There really is a feeling that BJP cannot even afford a narrow win, it must have a good win and so to that extent, I would expect this Budget to be tailored very significantly for making sure of electoral victory. That means they would not go for any radical changes in this Budget because radical changes will produce some losers in the short run, even if there are a lot of gainers in the long run. So, instead of going for radical changes, they will have small incremental changes.

    Number two, I think it will be the election budget. You have to look at every vote bank and none will be left behind. There will be something for industries, something for agriculture, something for small industries, something for services. There will be an attempt to cover the entire gamut of people and therefore it will be a soft budget. It will not be a tough budget attempting to get fiscal discipline back on track.

    The target is to get the fiscal deficit down to 3% of GDP. Thanks to the revenue boom, we will certainly achieve or over achieve this target of 6.8% of GDP for the current year. It may be down to maybe 6.6-6.7%. By how much will they reduce it? If you ask me, it will probably be well above 6% of GDP that Mrs Sitharaman would present because she does not want to be fiscally very tough in an election year.

    Not only that, there is a perfectly good reason saying I have to tackle Omicron and maybe it is not as deadly as the past wave, it is nevertheless a health crisis of a very significant nature. So Covid relief has to be provided for that is a very important part.

    Secondly, there is no question that while there is an improvement in the economy – the IMF had said we will have 9.5% growth in the current year – it may end up at 9% because of Omicron. Next year they projected growth at 8.5% which also looks very favourable. I would say that underneath, this is an economy doubly hit by adverse global trends and by health trends. So this is not an economy which is in really good shape. Rather, this is an economy which needs care. In these circumstances I would not expect a tough budget. I would not expect a tough stance.

    I would expect there to be a lot of money available on these various other things or different vote banks and definitely for fighting Omicron. There will be no radical changes. We will not say any strong things for farm reforms, privatisation or those kind of things. Nevertheless they will provide a significant amount of revenue through privatisation and asset sales. They have not done very well so far this year but they will try to emphasise that next year. And they will say we have to keep both our capex and supporting consumer spending because Omicron is still a problem. Those will be emphasised.

    Let us come to the challenges that the finance minister faces right now. One is inflation and the other is its impact on consumption demand and how it has been subdued especially in rural India. The HUL boss recently said that please increase allocations to MNREGA,, we are seeing demand falling. Do you think that the Budget will be the right platform where we might see some of these measures?
    Budget will certainly attempt to address both those issues. As to whether it will break down inflation, it is not up to the Budget. That depends on international trends. It depends on what happens to the price of oil and other commodities. It depends a lot on what happens on the monetary side. It depends on what the Reserve Bank does.

    Mrs Sitharaman will talk about the need to curb inflation but she is not going to use the Budget as a tool to curb inflation. That would mean she will have to bring down the fiscal deficit very drastically. I do not believe that she will do this. It would be wrong both for political reasons with the UP elections coming up and even for economic reasons. Economically, we need to say that this is a Budget which still needs to support an economy that has been hurt by Covid.

    So if there is some inflation, so be it. And I would say you would leave it to the Reserve Bank to try and tighten rates and do something to curb inflation on that side. Over and above that, global inflation perhaps has peaked and will begin to come down. This is the message that Fed and others are sending out that there were some temporary Covid induced disruptions of various kinds leading to inflation.

    With that being the mandate, if global inflation begins to come down, then that may have to be the most important way that inflation comes down. The finance minister has a magic wand and can bring inflation up and down. I do not think that would be the focus. Yes, there will be support for NREGA. They will speak quite a lot about what they are going to do for farmers. How they are going to do it I cannot tell but usually the way it is done is since the government does not have very much money, you create a number of schemes that the banks are supposed to finance. This is how it is done politically.

    I would expect several such schemes and to some extent this can actually work in boosting consumer demand and channelling back funds into various schemes which may then help to boost consumer demand. But everybody is very aware of the need for consumer demand and that will be a part of the Budget no doubt.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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