NEW DELHI, Jan 29: The Union Budget is an annual exercise, but this year all eyes are on Finance Minister Nirmala Sitharaman as she juggles with figures and facts to formulate policies to revive growth that has slid to a 11-year low and that many believe could be less than five per cent when the 2019-20 fiscal ends in March 31.
It is Sitharaman’s first “full” budget and the real change economists point out since last July when she presented her first budget is the state of the economy. Gross Domestic Product growth is set to be the lowest since the global financial crisis-affected in 2008-09 (April-March). A fall from 6.8 per cent in 2018-19 to 5.0 per cent this year is alarming.
The gross fixed capital formation, a proxy for investments, is projected to be just 1.0 per cent higher while private consumption expenditure growth is seen falling to 5.8 per cent from 8.1 per cent.
Headline inflation surged to 7.35 per cent in December, the highest in five years.
The unemployment rate also increased to 7.7 per cent in December, according to data released by think-tank Centre for Monitoring Indian Economy.
As GDP growth fell, the government came under opposition attack. Former finance minister P Chidambaram has slammed the government saying it is “clueless” about the economy.
The reasons behind the dismal state of the economy are not far to seek. A lack of consumer demand and job creation, absence of risk appetite in the capital and credit markets that has led to credit squeeze, and resource crunch with the government which are impacting growth of the economy.
Three vital sectors — non-banking financial companies, real estate, and infrastructure — which generate employment for a large number are grappling with liquidity and financing issues due to incomplete projects or bankruptcy of companies.
With the economy under severe stress, the finance minister has her task cut out. It is expected that she would announce measures to kick-start growth.
Information Minister Prakash Javadekar said at a cabinet briefing last week that a “plan of action” to boost the economy would be unveiled in the Budget to be presented on February 1. Reports emanating from the government say that the Prime Minister is seized of the matter having consultations with various stakeholders in the economy and ministries participating in the budget making process.
This year’s budget is expected to focus on boosting demand, especially rural demand, and economists say that the government should spend more without worrying about breaching fiscal deficit target.
Bharatiya Janata Party’s National Spokesperson on Economic Affairs Gopal Krishna Agarwal says the Budget should focus on expenditure to boost growth, even if it is at the cost of higher fiscal deficit.
The fiscal deficit (spending more than generated revenue) is likely to overshoot fiscal deficit limit in 2019-20 as well. It is said that an ideal fiscal deficit should not exceed 4 per cent of the GDP. The deficit, however, is likely to slip to 3.7 per cent due to the cut in corporate tax, slow capex and consumption growth.
The government is expected to make key announcements on divestments as it looks to close the fiscal deficit gap.
It is expected to announce some other tax boosters and sector-specific reforms to improve growth in the next fiscal starting April 1.
The government is aiming to make India a 5-trillion economy dollar by 2024-25. The Budget on Saturday would indicate how the government envisages a turnaround and the trajectory to reach the steep target. (UNI)
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