JULY 08, 2019 News the Newsbehind 33
indianeconomicpanoramaresearch department) writes that the
government will struggle to achieve a
$5 trillion economy by 2024. Neither
the Economic Survey’s prescriptions nor
the Budget’s announcements, he says,
“will propel us to the goal.”
Key factors having impact on GDP
are Consumption, private investment,
government expenditure, exports –
imports. Gowda examines the prospects
for favourable movements across these
heads over the next 5 years.
Consumption is experiencing a
slowdown. Th is is refl ected in lower
goods and services tax (GST) collections
and indicators such as a decline in
car sales. Real estate is experiencing a
slump.
And incomes for more than half
our people who live in rural India have
stagnated. Th ere is acute rural distress
as the farm economy copes with lower
prices, backbreaking loan burdens, the
absence of a safety net and the vagaries
of climate and water availability.
Private sector investment has also
been falling with the NBFC crisis has
worsened the credit crunch. Foreign
direct investment is also slowing, in
spite of India’s growth rate being higher
than other major economies.
Government investments, Gowda
says, can have a remarkable impact
on growth. However, the budget
only announced the formation of
a committee to look into how to
raise and invest the Rs100 trillion in
infrastructure.
Exports have fallen and are at a 14-
year low as a percentage of GDP. Th ey
are unlikely to improve, considering
the global conditions. And on the
import front, “we remain stuck with our
dependence on petroleum products.....”
US-Iran tensions can add to fi nancial
stress.
Thus, concludes Gowda, “the
current state of play with the factors that
drive GDP growth is very pessimistic.”
A ‘NUDGE’ TOWARDS A $5
TRILLION ECONOMY
Anil Padmanabhan writing in the
Mint says though the budget was bereft
of the fancy fl ourishes, it “gives Bharat
(rural India) centre stage. Moreover,
it implicitly incorporates the ‘nudge’
economy as its underlying strategy.”
He mentions the following five
takeaways.
First, committing to a lower the
fi scal defi cit is a huge positive. “One
may quibble with the underlying
assumptions, some of which potentially
err on the side of optimism by setting
ambitious targets for tax collections
and non-tax receipts and projecting a
modest growth in expenditure of around
13% despite taking on additional
spending under its various social welfare
programmes and packages to alleviate
farm distress—the allocations for
agriculture are projected to grow by a
staggering 75% this fi scal.”
Second, the “budget had its usual fare
of out-of-the-box ideas. Th e standout
one was the paradigm shift undertaken
in the fi nancing of the Union budget.
Part of the fi scal defi cit will be funded
through government borrowings from
abroad. Th e underlying idea to dollarize
the fi scal defi cit is to avoid crowding
out private capital from the domestic
markets and at the same time avail of
the low interest rates prevailing abroad
thanks to the glut of money.”
Th ird, the budget “ruled unequivocally
in favour of electric vehicles and, in the
process, underlined its willingness to
walk the talk on a green economy. And
this, despite the heartburn it will cause
to automobile lobbyists, who were
batting for combustion engines, or at
the least delay the roll-out of EVs.”
Fourth, the budget recognised
“ground realities; problems, which, if
ignored, could balloon into a crisis.
In this context, it was signifi cant that
the Union budget threw a lifeline toailing non-banking fi nancial companies
(NBFCs). Not only will it provide
the much-needed liquidity, it will
also prevent the present crisis from
degenerating into a contagion.”
Finally, the “budget got the optics
spot on. By making Bharat (rural
India) the central focus, it has been
able to stick to its mantra of being
pro-poor and pro-business......Her
carefully crafted 127-minute budget
speech ensured that even the handouts
to corporate India—like the increase
in customs tariff s to protect domestic
industry or the lifeline to NBFCs—
were carefully balanced: Keeping with
the PM’s summation of India being
made up of two classes—the poor and
those who help the poor—Sitharaman
targeted the top 1% with fresh direct
tax cesses; consequently, high income
earners, especially those with income
over Rs5 crore will now pay a maximum
marginal tax of 42.74%. Th e message
to the rich is clear: it is time to pay
back to the country, which gave them
so much.”
INCLUSIVE GROWTH’S
THE GOAL, WITH FISCAL
PRUDENCE
Ravneet Gill, MD & CEO, Yes
Bank is all praise for the budget. Th e
fi nance minister has skilfully balanced
the current needs of a slowing economy
with the medium-term goal of scaling
up the Indian economy to a level of $5
trillion by 2024-25.
Th e single largest feel-good factor,
according to him, is a reduction in FY20
fi scal defi cit target to 3.3% of GDP
from 3.4% announced in the interim
budget.
Th is along with unchanged gross
market borrowings of the government
(pegged at Rs 7.1 lakh crore) and the
idea of tapping overseas markets for
borrowings favourably tip the demand-
supply balance for G-secs, validated by
the softening seen in yields on 10-year
G-secs post the budget.