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Deloitte Response To Economic Survey

“The Economic survey 2020 projects a growth revival in FY 2021 but suggests that the government may have to incur expansionary policy to support growth. As has been argued earlier, the government has to prioritize growth. Once the momentum picks up, the government can take action to consolidate its expenses. Several economies have done this in the past. For instance, Germany—a strong proponent of a balanced budget—incurred a strong fiscal deficit during 2008-09 to help the economy come out of the crisis. The US fiscal deficit shot up to 8.1 percent as the US government sprang into action to pull the economy out of recession.

The survey has emphasized on raising capital expenditure (and reducing revenue expenditure) that leads to asset creation. The massive infrastructure investment announced by the government earlier suggests that the government is already taking the necessary steps in that direction. However, a revival in tax revenue will be key to the government’s infrastructure spending plans and the survey has emphasized on buoyancy in GST. Thus far, 78 percent of the spending burden (of the infrastructure program) is on the government, both on the State and the Centre. A stabilization of GST rates can go a long way in reducing uncertainty and improving business sentiments.

On investment-led growth. Primarily been driven by consumer spending, economic growth has to now come from greater investments. The survey has emphasized on investment-led growth. There is a focus on reviving the MSME sector, which is the major source of employment in India. There is also an emphasis on manufacturing in India and ease of doing business. It will be very important to address the stress on the financial sector to ensure credit growth and liquidity in the economy”.

-The author is Rumki Majumdar, economist, Deloitte India – CT Bureau

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