Budget 2020-21: Even as the economy sees a slowdown, the government may not be able to give enough boost owing to limited fiscal space, a report said.
Budget 2020 India: Even as the economy sees a slowdown, the government may not be able to give enough boost owing to limited fiscal space, a report said. This makes the upcoming budget challenging for finance minister Nirmala Sitharaman. After GDP’s first advance estimates estimating the GDP growing at 5 per cent in FY20, the situation is likely to become further challenging, Motilal Oswal’s Ecoscope said. Still, there are two key expectations from the budget — relaxation of fiscal deficit target and a boost in consumer spending. “We believe that while the limited fiscal room must be utilized with some strict conditionality to make the first expectation turn into a reality, the second one must be avoided despite the very strong urge,” the report added. The government should keep forward the true economic and fiscal narrative in front of the nation so as to understand the real opportunities and challenges, the report noted.
“Irrespective of whether or not the government decides to follow fiscal consolidation or relax deficit targets, clear reasoning for its decision would help a long way to clear the air on this confusion,” Motilal Oswal’s Ecoscope said.
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The government could induct public sector borrowing requirements along with the central government’s deficit or borrowing data. The foreign savings may be used to finance the additional deficit to avoid further stress on markets. It is for the government to ensure that the borrowings are exclusively utilised for investment spending, the report also said, adding that any push to personal consumption should be strictly avoided.
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Meanwhile, the IMF recently revised downward India’s GDP growth projection to 4.8 percent for FY20 and to 5.8 percent for FY21. “(India’s) domestic demand has slowed more sharply than expected amid stress in the non-bank financial sector and a decline in credit growth,” the IMF report said.