scorecardresearch
Follow Us:
Monday, July 13, 2020

Budget 2020 was aspirational but fell short of addressing key issues

Whether this Budget can aid in immediate growth revival as desired right now is one of the questions everyone is asking.

New Delhi | Updated: February 4, 2020 4:25:24 pm
Finance Minister Nirmala Sitharaman (right) with Minister of State for Finance Anurag Thakur Finance Minister Nirmala Sitharaman (right) and Minister of State for Finance (left) Anurag Thakur address a press conference after presenting the Budget for 2020-21. (Express photo by Amit Mehra)

By Rumki Majumdar

The Union Budget 2020 was presented on February 1 amid a rising concern regarding the economic slowdown, coupled with rising food inflation and fiscal deficit. Economic activity has been losing momentum for the past five quarters. Growth for FY2020 is forecast at 5 percent, marking it as the lowest growth in a decade. The global economic headwinds arising because of trade uncertainties and stagnant growth in several advanced nations add to these woes. Even though India has relatively low exposure, it is not immune to the global slowdown. Additionally, geopolitical tensions leading to fluctuations in oil prices may further add to the existing economic woes.

As expected, the government relaxed its fiscal deficit target for this fiscal year. The fiscal deficit for FY2020 has been pegged at 3.8 percent, which is 0.5 percent higher than the earlier target, and this might be justified as well. At a time when private consumption demand and investment are weak, the government has to spend to get the economy out of the vicious circle of low growth and increasing prices. The fiscal deficit target for FY2021 is pegged at 3.5 percent of GDP. In other words, the government intends to rollback spending in the next fiscal year.

Budget 2020 offered a plethora of proposals to boost the flagging economy. It lived up to a few pre-Budget expectations, such as increasing capital infrastructure spending and providing tax relief to the common man. To improve agriculture infrastructure and a farmer’s income and well-being, the Finance Minister listed 16 action points. Some of these action points included increased credit flow, incentives for farmers shifting to solar, provision of insurance for farmers, and warehouse building incentives.

To improve business sentiment, the FM abolished dividend distribution tax at the hands of the companies. In addition, the FM proposed an investment clearance cell to provide “end-to-end” facilitation and support in areas, including pre-investment advisory, information related to land banks, and facilitate clearances at centre and state levels to aid ease of doing business.

In addition, a few significant announcements for recognising the importance of the small and medium scale industries and startups in creating jobs and promoting innovation were made. The proposals aimed to reduce the stress on working capital requirement for SMEs and rectify an anomaly around employee stock ownership plan, which the startup community has been demanding for a long time.

The Budget emphasised spending on social infrastructure by allocating funds for education, skill development, health, and environment. Announcements such as Rs 20,000 crore for the renewable energy sector, solar options for agriculture and railways, incentivising farmers to go solar show that the government is willing to deal with matters around climate change, environmental sustainability, and resource scarcity.

The Budget was surely aspirational but fell short of addressing key structural and institutional factors that have significantly impacted business sentiments and thereby, investments. The government did not address the reforms around land and labour, environmental, and other regulatory clearances adequately.

Whether this Budget can aid in immediate growth revival as desired right now is the other question everyone is asking. Given the expectation that infrastructure investment measures may aid in providing the desired boost to the economy, a lot will hinge on the successful and speedy implementation of the massive infrastructure programmes announced by the government.

The government has emphasised the use of public-private partnerships (PPP) to meet the infrastructure investment objectives across diverse sectors such as airports, roads, hospitals, etc. However, it is not clear if there is an understanding of the possible funding model, their viability, and so on. The regulatory requirements to implement these models may have to be defined. Secondly, given the window open for sovereign wealth fund of foreign governments to invest in priority sectors with concessions (such as tax exemptions) is limited, these funds should be able to find projects that are ready for investments. Thirdly, currency vulnerabilities result in uncertainties in returns for foreign investors. These issues, unless addressed immediately, will impact investment attractiveness of these massive infrastructure projects.

Infrastructure has very strong interlinkages with the rest of the economy, and huge investment in this sector will have a significant spillover impact. However, unless these projects take off meaningfully and quickly, the economy may not get the boost it needs to get out of the slowdown trap.

It is encouraging to see the government’s effort to address a few of the long-standing wishes of both the industry and common man. The government has to build on to the momentum through more actions (beyond the Budget) if it wishes to contain the economic slowdown.

The author is an Economist at Deloitte India. 

📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines

For all the latest Business News, download Indian Express App.

Advertisement
Advertisement
Advertisement
Advertisement