The credit rating agency, India Ratings and Research in its latest report has said that in the forthcoming budget scheduled to be presented on February 1, 2017, Finance Minister Arun Jaitley may have to provide stimulus to the economy to ease the pain of demonetisation. Further the rating agency stated that the sudden decision of cancelling the legal tender of Rs 500 and Rs 1,000 notes and the chaos created thereafter due to the limited availability of new currency has caused significant disruption to the economy and employment.
India Rating in its report titled 'De-legalisation Tsunami May Compel Government to Provide Stimulus in Union Budget FY18', lowered the India's GDP growth estimate for the current fiscal to 6.8 percent, from its earlier estimate of 7.8 per cent and taking into account the present situation, the adverse impact may flow into FY18 too.
On informal sector, the report said that it is not a standalone sector and has strong-weak linkages with the formal sector, depending on the nature of goods/services dealt in. Therefore, where business in the informal sector has come to a grinding halt or down by 30-40 per cent and beyond, it has resulted in either ‘nil’ or lower income generation.
Further report has said that Indian public finances (central, state and local bodies) suffer from committed expenditure syndrome as a large part of current expenditure is inflexible and cannot be reduced/curtailed in the short-run. Therefore the fiscal room for stepping up expenditure has to either come from higher revenue collection or higher fiscal deficit. With growth expected to fall not only in FY17 but also in FY18, the government is clearly staring at lower tax collection. Further it believes that integration of the railway budget into the general budget will increase capital expenditure.