Budget 2017: The Missing Feel-good Factor

- Prosenjit Datta

The first post-demonetisation Budget has been cautiously praised by most economists and analysts for being pragmatic and restrained and focusing on the right things. Given the slow growth of big private investment in greenfield projects to create lots of jobs, the government has tried to tackle the problem partly through tax incentives to the micro, small and medium enterprises (MSME) sector, which accounts for a tad over 37 per cent of the GDP (taking manufacturing and service firms into account). He has proposed even higher spending on infrastructure, which has been the government’s focus for the past two years anyway. The logic is that infrastructure spending boosts economic growth both directly and indirectly. Directly, through the demand it creates for labour and materials such as cement and steel, and indirectly because it gives a fillip to economic activities in areas close to the road or port or railway line being built. He has also allocated more for agricultural activities and rural sector, including the highest ever allocation for the MGNREGA programme. They are all designed to boost farming and rural income, and hopefully increase rural consumption. Given that the rural areas were badly hit by the demonetisation exercise, this is a pretty good step.