Union Budget 2020 India: Moody's Investors Service has described that economic growth projections made by Finance Minister Nirmala Sitharaman in the Budget 2020-21 appear ambitious given the structural and cyclical challenges facing the Indian economy.
Budget 2020 India: The finance ministry has said it will try to assuage concerns of rating agencies on opting for higher deficit and other Budget numbers while stressing that fundamentals of the economy are strong. Moody’s Investors Service has described that economic growth projections made by Finance Minister Nirmala Sitharaman in the Budget 2020-21 appear ambitious given the structural and cyclical challenges facing the Indian economy. Economic Affairs Secretary Atanu Chakraborty said the Indian economy remains robust and more than meets the requirement of investment grade and above. “Certainly, I can say that the economy remains robust and more than meets the requirement of investment grade and above,” he said.
Asked if he is apprehensive about rating downgrade following relaxation in the fiscal deficit target, he said, “No, not at all. Since I see the numbers much more closely, I am strongly confident of the inherent robustness of the economy. It is far too robust than our numbers reflect.” This is the economy that has just decelerated, he said adding that no contraction took place. India’s gross domestic product (GDP) growth is expected to slow to 11-year low of 5 per cent in the current financial year.
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He further said the government will address the concerns of the rating agencies. “We have to have a dialogue with them. So, we will keep assuaging their fears. The fear is not about this number but the numbers arising out of the future impact — debt-to-GDP ratio, interest coverage and so on and so forth and, in turn, how the entire economy is behaving. “That is why it is a comprehensive Budget and speech, which addresses all those questions… I would be flippant if I say that I am not concerned about them,” he told PTI in an interaction.
The Budget expects a nominal GDP growth of 10 per cent in the next financial year, followed by 12.6 per cent and 12.8 per cent in 2021-22 and 2022-23, respectively. The government on Saturday raised fiscal deficit target to 3.8 per cent of the GDP from 3.3 per cent pegged earlier for 2019-20 due to revenue shortage. “We estimate a fiscal deficit of 3.8 per cent in RE (Revised Estimate) 2019-20 and 3.5 per cent for BE (Budget Estimate) 2020-21. This estimation is consistent with the government’s abiding commitment to macroeconomic stability,” Finance Minister Nirmala Sitharaman said while presenting the Budget 2020-21.
The government has utilised ‘escape clause’ under the Fiscal Responsibility and Budget Management (FRBM) Act, which provides it a leeway for relaxation of fiscal deficit road map during time of stress. The ‘escape clause’ allows the government to breach its fiscal deficit target by 0.5 percentage points at times of severe stress in the economy, including periods of structural change and those when growth falls sharply.