Budget 2019: Need for balancing act to revive investment, drive consumption & keep fiscal deficit in control

By: |
Published: June 22, 2019 11:16:29 PM

Union Budget 2019 India: The Budget will have to do a balancing act to revive investment, increase farm productivity, drive consumption and keep the fiscal deficit under control.

India Budget 2019: In FY19, GDP growth has slipped to 6.8%, a five-year low, because of weak rural demand, slowdown in investment and impact of higher borrowing costs.

Union Budget 2019: On July 5, finance minister Nirmala Sitharaman will present the first budget of the second term of Narendra Modi government against the backdrop of a sharp economic slowdown. In FY19, GDP growth has slipped to 6.8%, a five-year low, because of weak rural demand, slowdown in investment and impact of higher borrowing costs.

Aggregate demand is slowing down as rising rural distress has led to slowdown in private consumption, and households have gradually reduced consumption due to insufficient income growth. The growth in investment demand in the fourth quarter of fiscal 2019 has dropped to 30.7% of GDP, a eight-quarter low. Even household investment has reported a steep fall—from 15.7% of GDP in FY12 to 10.3% in FY18.

Given the fact that the overall tax collections grew just 8.4% y-o-y in FY19 as compared to 18.4% budgeted, and were later revised to 17.2%, the Centre will have to tone down the tax revenue target for this financial year. A sputtering economy cannot generate 23% growth in gross tax revenue as targeted in the interim budget, or a 34% growth in personal income tax. The Budget will have to do a balancing act to revive investment, increase farm productivity, drive consumption and keep the fiscal deficit under control.

Do you know What is Wholesale Price Index (WPI), Public Debt, Finance Commission Grants & Other Transfers, Economic Survey, State Finance Commission? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.