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Economic Survey: Industry Responses

“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

The 2019-20 Economic Survey, in the context of India aiming to become a $5tn economy by 2025, focuses on ‘wealth creation’. For this, it emphasises free-market dynamics and trust, conducive policies for entrepreneurship, labour-intensive export plan and the need to avoid crony capitalism & irrelevant government intervention. It proposes a health score for NBFC companies and a case for aggressive disinvestment, with the latter being widely expected in FY21. It believes FY20 fiscal deficit may have to be relaxed to support growth and calls for counter-cyclical policies to boost demand, supported by higher GST buoyancy and food subsidy rationalisation. We expect a fiscal deficit of 3.8% of GDP in FY20 (vs. 3.3% budgeted and in the context of GST collections averaging only about 4% y/y so far) and 3.5% in FY21. The survey highlights historical evidence on headline inflation reverting to core inflation and the minimal transmission from food and fuel prices to core inflation. The latter could be particularly true in the current context of a supply-side shock (recent spike in vegetable prices) in a weak-demand environment (slow growth, wages and imports). Finally, it refutes claims of India’s GDP being overstated, by highlighting possible errors in a cross-country analysis, the need to include micro-evidence (e.g. new firm creation in the service sector and better cess to electricity) and variation in idiosyncratic growth drivers such as institutional and legal structuresThe author is Sreejith Balasubramanian, Economist – Fund Management, IDFC AMC 

―CT Bureau

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