As the world gapes at Indian economy and its performance among the emerging as well as global markets, policymakers are working hard to bring in a balance between rising inflation and slowdown in the economy to keep the hopes alive to become a $5 trillion economy in next five years.
Finance Minister Nirmala Sitharaman will present the Union Budget 2020-21 in Parliament on February 1 and she surely has a task to please common consumers, corporates, non-resident Indian (NRIs), just to name few... and this is quiet a challenge, specially when the Indian GDP numbers have been on decline for sometime now.
Economic stalwarts like the International Monetary Fund's chief economist Gita Gopinath and former RBI governor Raghuram Rajan have expressed doubts over possibility to achieve ambitious target of $5 trillion Indian economy by 2025. Experts pin their hopes that this budget will lay the foundations for $5 trillion economy.
Gopinath points out that Asia's third largest economy would have to grow at 10.5 per cent in nominal terms as against six per cent in the last six years, and 8-9 per cent in real terms in order to achieve the target."The fiscal situation in India is 'challenging' and the country will certainly breach the 3.4 per cent deficit target," she said.
However, NRIs see that the UAE has a huge role to play in India's goal to achieve $5 trillion level and it is doable and budget may just be the opportunity to unveils sops that might change the direction from slowdown to gradual building of the economy.
Most of the NRIs are interested to get some tax relief on their investment in real estate, stocks and bonds as well as permission to carry more gold without charging higher duties and liquid cash when they travel back home. However, big corporate groups and businesses seek economic reforms in key sectors and more allocations to healthcare and education.
Dr Azad Moopen, founder chairman and managing director, Aster DM Healthcare, said the Indian budget should focus on increasing public spending on healthcare, considering India's demographics, growing population and increasing disease burden.
"The 2019-20 budget allocated just one per cent of GDP to healthcare. This should be increased to 2.5 per cent to drive the health sector fast forward. In developed countries it is 10 per cent and in the US it is 18 per cent of the GDP. This will help in making healthcare accessible to marginalised populations," Moopen told Khaleej Times.
The Indian economy has been abating down since 2016-17 when real GDP growth had crested at 8.2 per cent. Nominal GDP development in 2019-20 is expected to be 7.5 per cent, which is the least level since 1975-76 - a 44-year low.
"The budget for 2020-21 must not only address the problem of taking the economy out of the current slowdown, but also lay the foundation for a faster economic growth," Prasanth Manghat, CEO and executive director, NMC Health.
He said the immediate task before the forthcoming budget is to use fiscal policy to stimulate demand.
"The available policy options can be divided into two broad groups. The first is increasing household disposable income through concessions in the personal income tax and/or making additional income transfers through schemes such as the Kisan Samman Nidhi.
The second option is to increase government expenditure directly. Here also, the increase can be in revenue expenditure or capital expenditure," said Manghat.
Rizwan Sajan, founder and chairman Danube Group, said the government should adopt policy measures to encourage consumption and investment in the country. "Encouraging consumption and investment is really vital to achieve a stable economy because both of these factors are interrelated in such a way that if one is affected, its consequence are felt on the other. Having run our businesses in Indian market for over a year, the agenda of the budget should now lean towards jobs creation, consumer spending, tax reduction and bringing investment because all of these factors put together with consumer and business friendly commitments will be beneficial for all of the economic drivers across the board."
India's inflation breached the upper end of the Reserve Bank of India's 2-6 per cent target band as it accelerated to 7.35 per cent in December 2019 from a year earlier - the steepest gain since July 2014. Core inflation, which strips out volatile food and fuel prices, inched up to 3.75 per cent in December 2019 from 3.5 per cent in November 2019.
"Higher inflation is due to a spike in prices of certain food items and this being a seasonal phenomenon, is likely to normalise soon," Krishnan Ramachandran, CEO, Barjeel Geojit Securities, said.
"Slowdown in the economy, to a large part, is due to problems in the domestic financial sector. Measures that help improve the flow of credit will help the economy recover while relying on an investment led growth model will help make economy more resilient in the long term," he said.
The current slowdown in the country can be attributed to factors like weak global growth, domestic consumption slowdown (in discretionary space - due to liquidity issues), low private sector capex and pressure on informal sector such as SMEs impacted post NBFC crisis, introduction of structural reforms, etc.
"Rise in inflation has been led by increase in food prices while the non-food components are well under control. Food inflation was largely due to seasonal factors and specific measures have been taken to ease the same. Further the current inflation trajectory in not comparable to high inflation years like 2013 and is unlikely to be an impediment to growth," Sailesh Raj Bhan, Deputy CIO, Nippon India Mutual Fund, said.
The RBI had done massive policy easing by infusing liquidity worth over ?3 Lakh crore post the breakout of NBFC crisis along with 135bps of reduction in policy rates during current year 2019. However, the speed of transmission was impacted by the higher risk perception in the market. With the surplus liquidity in the banking system persisting for the last 6 months, monetary transmission has picked up pace. Policymakers have taken various steps to bring the confidence back in the credit market. Lending rates have also started to decline and this bodes well for credit growth recovery in the coming quarters.
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