Budget

Budget 2020: Three things Nirmala Sitharaman needs to watch out for

Budget 2020: Three things Nirmala Sitharaman needs to watch out for

  • Government must realize that without a revival in consumer demand, investor sentiment which is at its lowest in six years, is not going to improve
  • The Oxfam report released on Monday only reaffirms the growing inequality in India
Nirmala Sitharaman

As finance minister Nirmala Sitharaman prepares to present her second budget at a time growth is projected to decelerate to 4.8% in 2019-20 by the International Monetary Fund, here are the three things that Sitharaman needs to keep in mind:

Demand push

While the government has reluctantly acknowledged that the Indian economy has a growth problem, it has so far desisted from announcing a big demand push, unlike by the previous United Progressive Alliance (UPA) government, which had faced the global financial crisis of 2008. The National Democratic Alliance (NDA) government’s approach so far has been to take incremental sector-specific, supply-side measures. The big supply push though came in the form of a cut in corporate tax rates to attract investments by technology companies looking for avenues outside China, amid Beijing’s ongoing trade war with Washington. There is now ample evidence that the rural distress is for real and government needs to recalibrate spending, by putting more money in rural infrastructure projects with quicker turnaround time as well as in the rural employment guarantee scheme.

Investment revival

While the last Economic Survey prescribed a private investment-led growth strategy to achieve Prime Minister Narendra Modi’s vision of making India a $5 trillion economy, it has not quite materialized so far. Government must realize that without a revival in consumer demand, investor sentiment which is at its lowest in six years, is not going to improve. Government needs to address the structural issues in the economy including the liquidity crisis by the shadow banks. It must frontload a significant chunk of its proposed ₹102 trillion infra projects and fast-track work on the ground.

Growing inequality

The Oxfam report released on Monday only reaffirms the growing inequality in Asia’s third largest economy, with the richest 1% controlling 42.5% of national wealth. With growing unemployment and shrinking job opportunities for the educated youth, the challenge is not only to create employment opportunities but well-paying jobs and greater social security to make sure a greater section of the society benefits from economic growth. Government in the Budget may look for a more progressive taxation policy, incentivize loans and facilitate ease of doing business for small firms and startups which could drive job creation in the economy.

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