Union Budget 2019 India: Finance Minister Nirmala Sitharaman must focus on getting back the economy’s animal spirits in the upcoming budget.
Union Budget 2019 India: Finance Minister Nirmala Sitharaman must focus on getting back the economy’s animal spirits in the upcoming budget so as to revive it from the ongoing slowdown, an analyst said. Other than this, the current challenges in the BFSI sectors and trade tensions that are slowing the growth must also be tackled, a market analyst said. “Privatization could be a key which can rally change market sentiment as there is a feeling that good money is being used on loss making companies. The central government has started to slip on its medium term commitment of fiscal consolidation (Fiscal deficit at 3% of GDP),” Abhimanyu Sofat, Head of Research, IIFL Securities told Financial Express Online.
Commenting further, he said that even the state finances are under stress on account of loan waivers, pay commission revisions and spending on income support schemes (Rayutu Bandhu in Telangana, Kaalia in Odisha, among others. It’s important for the budget to consider ways to bring down the combined (state and centre) fiscal deficit from 7.4 per cent of GDP (FY19) to the medium term goal 6 per cent of GDP.
“We did see some pick up in investments (GFCF growth improved to 10% YoY in FY19 from 9.3% YoY last year, Capacity utilization has edged up to ~76% in December-18),” he noted. The upcoming budget has to ensure that the deceleration in the consumption growth does not derail improving investment cycle, he added.
“Both physical and financial savings of households have been weak since last several years (HH savings have declined from a peak of ~25% of GDP in FY10 to ~17% of GDP in FY18). Unless the saving rate improve the improvement in ICOR (incremental Capital Output Ratio) is unlikely to rise. This is critical as unless ICOR improves high GDP growth in unsustainable,” he also said.