Budget 2019-20: Recent Budgets focused singularly on the trinity of farmers, welfare, and in case of the February edition, the Middle Class. It would perhaps be timely to emphasize the much-forgotten side of the economy i.e. private sector productivity (supply) in the upcoming Union Budget.
By Nikhil Arora
Budget 2019 India: On 1st of February 2019, the then Finance Minister (FM) Piyush Goyal presented a Pre-Election Interim Budget. With polls only a few months away, his approach naturally was one of restraint and hesitation. Cosmetic allusions to populism aside – it was a rather solemn affair. Many realities have manifested since. The incumbent government has returned with a thumping vote of confidence. But a concurrent release of poor macros quickly negated any inbound optimism.
Quarterly GDP growth hit a 5-year low. Unemployment concerns have only reinforced. The financial system continues to stay constrained with the NPA quandary now accentuated by stressed NBFCs, only snowballing from one negative news to another.
A wide-spread slowdown in private consumption, demonstrated via declining vehicle or FMCG sales indicates that the economy’s only driving engine is now shutting down. This grim point has even been acknowledged by the Reserve Bank itself, while its compelled to put in back-to-back interest rate cuts.
Seems the Union Budget, to be announced on 5th of July, can’t afford to stay solemn. Purist views aside, let us not forget that the Budget at its core is a demonstration of intent. Would Nirmala Sitharaman, the second woman ever to fill-in the FM’s shoes, constrain her much anticipated intent due to notions of reduced fiscal headroom?
At 3.4 per cent i.e. the last fiscal deficit revised estimates (RE) for FY18-19; irrespective of ambitions set by the Fiscal Responsibility and Budget Management (FRBM) Committee, stands at a decade-low. The FRBM’s magic 3.0 per cent has anyways served as a moving target of sorts, being pushed back from 2008 to 2020-21.
Another few years should not make anyone blush, especially considering the extraordinary circumstances which are transpiring. Yes, the bond markets may witness some volatility. Foreign investors, nervous and flaky that they are,
may get nervous. But with a fresh mandate ahead of them, the government should have no reason to become a hostage of its own framework. The new FM’s hands on the fiscal front, are tied only to the extent to which she allows it.
Recent Budgets focused singularly on the trinity of farmers, welfare, and in case of the February edition, the Middle Class. It would perhaps be timely to emphasize the much-forgotten side of the economy i.e. private sector productivity (supply) in the upcoming Union Budget.
Another core area which needs emphasis is the dwindling consumption (demand). Expect introduction of retail and corporate tax breaks to spike consumption and boost investment, only to be balanced by an enhancement of non-tax revenues. The latter should be formalized through aggressive privatization schemes and structured PSU land sales.
On expenses, one shouldn’t be too surprised if a NBFC-focused bailout and an ambitious infra/capital spend scheme (e.g. water utilities for all) is announced. Investment at the retail and MSME level, be it through interest rate subventions and softer loans could potentially be on the table. The RBI’s expert committee recommending the doubling of quantity / threshold of MSME collateral-free loans appears prescient.
An initial road map for land and labour reforms, a measure with would have a considerable gestation period, would be welcome. Mass social welfare, be it on fronts of education or healthcare or agriculture, would perhaps stay on the sidelines for now. The election season after all is over.
(Nikhil Arora is a Finance & Economics Commentator, former investment banker at HSBC London and presently Founder & CEO of Transfin. Views are author’s own.)