Union Budget 2019: As Finance Minister Nirmala Sitharaman gets ready for her first walk into the Parliament with the Budget briefcase in hand on July 5, the dark clouds of decelerating GDP growth threaten to rain on her parade. The six-member monetary policy committee (MPC), headed by RBI Governor Shaktikanta Das, recently lowered its GDP growth forecast for FY20 to 7 per cent from 7.2 per cent in the April policy. In April, the International Monetary Fund (IMF) had also lowered India's growth forecast by 0.1 percentage point for 2019 to 7.3 per cent and 0.2 percentage point for 2020 (7.5 per cent).
This comes on the back of a worrying Q4FY19, which saw the lowest growth rate of 5.8 per cent in the past five financial years. In the previous quarter, the GDP growth rate was pegged at 6.6 per cent. The deceleration meant that India lost the tag of the fastest growing major economy in the world to China in the January to March quarter. In its monthly economic report dated May 1, the finance ministry had blamed factors such as "declining growth of private consumption, tepid increase in fixed investment, and muted exports" for this state of affairs.
Former Chief Economic Adviser Arvind Subramanian has revealed even more worrying news on the GDP front in a recent research paper published at Harvard University. Citing a variety of evidence - within India and across countries - Subramanian claims that India's growth rate has been overstated by about 2.5 percentage points per year in the post-2011 period. In other words, the actual growth rate is likely to have been a very tepid 3.5-5.5 per cent against a reported average growth of 6.9 percent between 2011 and 2016.
The slowdown that's underway is a major cause for concern for Sitharaman - the first woman to hold the top post at North Block after former Prime Minister Indira Gandhi - since she will have to work out a balancing act between introducing fiscal stimulus to revive the economy while keeping an eye on fiscal prudence. The fact that her maiden Budget speech is also likely to include at least some electoral promises only makes her task tougher.
According to experts, counter-cyclical, expansionary, macroeconomic policies are the best way to revive economic growth. The RBI had done its bit in the latest monetary policy by slashing the repo rate for the third consecutive time, bringing it down to a nine-year low. Now the government needs to announce a fiscal policy that will also provide a stimulus, say, by boosting public investment and getting citizens to loosen their purse strings.
For instance, given the link between agrarian distress and economic slowdown, a quick route to boosting consumption is to increase farmers' income. The BJP election manifesto has already promised to double their income by 2022. The Centre has also notified its decision to extend the benefit of Rs 6,000 per year under the PM-KISAN scheme to all 14.5 crore farmers. Perhaps Sitharaman's budget briefcase will pack more such sops.
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Meanwhile, the Confederation of Indian Industry (CII) has recommended that the government cut key interest rates to boost demand and propel the economy forward.
Ahead of the Budget 2019, Prime Minister Narendra Modi had constituted eight Cabinet Committees to look into various areas, including one for Economic Affairs that will directly deal with the slipping GDP figures. This is the first time that such panels have been set up and their recommendations are bound to have an impact on Sitharaman's July 5 speech.
In any case, this is her chance to make history. If she plays her cards right she can guarantee a spot alongside illustrious predecessors who changed India with their budget speeches, be it Dr Manmohan Singh's 1991 Budget that ushered in liberalisation, P.Chidambaram's Dream Budget of 1997 or Arun Jaitley's 2014 Budget introducing GST.
With PTI inputs