The finance minister has maintained a fair deal of continuity in the Budget, while adhering to the FRBM path, which is pragmatic. Working backwards at a fiscal deficit ratio of 3.2 per cent, the monetary situation has been kept in equilibrium as there will be untoward pressure on liquidity. At the same time, there has been an uptick in expenditure which will help increase investment from the public side and thus aid growth. But it should be noted that in the absence of private investment picking up, there will still be pressure on capital formation. Housing, roads and railways appear to be the favoured sectors that can forge strong backward linkages with steel, cement, machinery and metals in a gradated manner and compensate, to an extent, for the slowdown witnessed due to demonetisation.
Two areas that need to be observed are consumption and savings. While tax relief provided to individuals should help bring about a push in demand for consumer goods, they may not be adequate and will have to be supported by higher growth in income and employment. Nonetheless, the Budget has made provisions for encouraging consumption to the extent that it is possible. There are no specific measures to boost savings. It is more a case of income saved on tax being used for either consumption or savings. Given that consumption was impacted by the note ban, it is likely that tax saved will be used for consumption.
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