Talking to ET Now, Tushar Arora , Senior Economist, HDFC Bank , says rural distress came out as the most important factor in recent Assembly elections and spending more on the rural side, especially on the capex side. is something which government will have to focus on in the budget.

Edited excerpts:

What are you reading into the CSO estimates and what could it imply for the yields? Also, what do we expect now from the finance minister in his commentary for the budget?
We were expecting the GDP growth estimate to be 6.5% and it has come in in line with our expectations. As for what it means, the bad part first. Growth rate has come at a four-year low and so growth in FY18 will be lower than in FY17. But the good part is that the second half of FY18 would be better than the first half. The 6% growth rate which prevailed in the first half will pick up to around 7% in the second half. If we look at the sectoral big round, agriculture is likely to grow at the same pace -- at around 2% -- but the pick-up is likely to come in the manufacturing and services sectors where growth rates are likely to accelerate in the second half.

As far as repercussions for both the fiscal and the monetary policies are concerned, I believe it would be a tough balancing act for the government now because the tax collections have not been good and the fiscal deficit is calculated as a base of the nominal GDP and now the nominal GDP growth rate is also expected to come in lower.

This means the fiscal deficit as a percentage of GDP would be a bit higher than what government had projected. In terms of monetary policy, generally a growth slowdown or a downturn in growth means RBI may think of a rate cut but at this stage, inflation is really going up to a level at which RBI is not really in a situation to cut rates. So even with low growth rate numbers, we cannot expect rate cuts from the RBI.

There is stress on the agrarian side. There is stress on the rural side. Do you think based on the GDP advance estimates, the tone of the budget really would be tilted towards agrarian and rural to kick-start the economy now.
Certainly, this is the talk of the town. Everyone is talking about rural distress. If you look at the GDP growth rate numbers, agri production is not great. If you look at rabi sowing which is sign of what is expected to come in next year. that is not great. If you look at election results from the recent state assembly poles, rural distress came out as the most important factor, creating the most important swing factor as far as outcome of the elections were concerned.

So, certainly, the government will have to do something about it and I think spending more on the rural side, especially on the capex side. is something which government will have to focus on in the budget. How they do it, how they finance it is a tricky question but certainly the focus has to be the rural economy.