Budget 2020: Govt throws ball back into RBI’s court; measures to boost economy hang mid-air?

By: |
February 1, 2020 6:08 PM

Union Budget 2020 India: One of the few reasons why not many fiscal measures came out of the budget may be the tight pocket of the government.

Budget 2020, Union Budget 2020 India, Budget 2020 India, Budget 2020-21, RBI, reserve bank, repo rateBudget 2020-21: Now when the Budget is out and there is little help to boost consumption and demand, all eyes are now glued to the RBI’s upcoming sixth monetary policy committee meeting.

Budget 2020 India: Amid a prolonged slowdown, while the market was expecting RBI to cut rates for the sixth straight time in the last MPC meet, the Reserve Bank of India did not go for it. As a reason, the RBI said there is merit in a wait-and-watch approach to see how these measures pan out and impact real economic activity, including investment. However, now when the Union Budget 2020 is out and there is little help to boost consumption and demand (Read more), all eyes are now glued to the RBI’s upcoming monetary policy committee meet for its interest rate decision. The MPC meeting is scheduled to be held between 4-6 February 2019.

One of the few reasons why not many fiscal measures came out of the budget may be the tight pocket of the government. Finance Minister Nirmala Sitharaman today announced that the fiscal deficit for the current fiscal may slip to 3.8 per cent, which is much more than the previous target. The budget documents also reveal that the revenue receipts in the current year may not even touch the last year’s level.

“The fiscal deficit for FY20 has been pegged at 3.8 percent, 0.5 percent higher than targeted earlier. At a time when private consumption demand and investment are weak, the government has to spend to get the economy out of the vicious circle of low growth and high inflation,” Rumki Majumdar, Economist, Deloitte India.

Watch Video: What is Union Budget of India?

The previous measures announced by the government will itself burn a hole in the revenue collections but those measures appear to be a must considering the state of the economy. Once growth gets the desired momentum, the government can consolidate its expense and desperate time calls for desperate measures, Rumki Majumdar added.

Meanwhile, the central bank has still kept its stance ‘accommodative’, which means the rate can either remain the same or further cut but generally, it cannot be increased. To provide cushion to the sagging economy, the central bank cut 135 basis points in the last calendar year. However, despite a substantial reduction in rates, the credit growth still remained subdued. The central bank then said that the forthcoming union budget will provide better insight into further measures to be undertaken by the government and their impact on growth and thus it considered a wait and watch approach before further slashing the rates.

Do you know What is Finance Bill, Short Term Capital Gains Tax, Fiscal Policy in India, Section 80C of Income Tax Act 1961, Expenditure Budget? 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.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.