Budget to tackle external threats

THOUGH THERE WILL be no change in the stated policy to allow the rupee's value to be market-determined, policymakers have taken note of the rising costs of imported machinery and intermediates caused by the weaker local currency, and its dampening impact on the investment climate.

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“What is causing concern is that FDI and portfolio inflows have slowed at a time when domestic savings aren’t very robust. This can hit capital formation,’ said a source.

According to the sources, the Budget might double down on structural reforms rather than short-term stimuli to the economy. While still placing robust domestic demand at the centre of the growth strategy, steps would be taken to prevent the external sector from being a bigger drag on growth in the short term. The shift to a debt-anchored fiscal policy is seen to have given the minister additional leeway, helping her keep budgetary capital expenditure for the next fiscal as well at relatively higher levels.

The policy measures likely to be announced by the minister include customs duty rationalisation on key inputs, higher budget outlays and credit to promote exports, power sector reforms through the proposed Electricity (Amendment) Bill, financial sector liberalisation including further consolidation of PSBs and higher FDI in PSBs, deepening of bond market, and a revamp of the National Single Window System. Expanded MSME support, youth employment initiatives, and better alignment of rural livelihood programmes are also expected in the Budget.