ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Road Map for Structural Reforms in Budget 2019

A Reality Check

There were great expectations of fast-tracking reforms in the budget. However, it disappoints in setting a road map for creating a virtuous cycle of investment and growth. On the fiscal front, the overambitious revenue projections raise questions of credibility and feasibility of containing the deficits at the budgeted level. The wait for banking and financial sector reforms continues. The selective increases in import duties are retrograde, and increase in the taxes on the super-rich complicates the tax system without much gain in revenues. The centralisation through the levy of surcharges does not match the lip service given to cooperative federalism.

The union budget presented on 5 July was against the background of a difficult international environment and slowing domestic economy. The International Monetary Fund (IMF) in its July forecast for 2019 has lowered the growth rate of global output to 3.2% with downside risks. The United States (US) growth is pegged at 2.6%, the euro area is estimated to grow at 1.3%, and the estimate for the advanced economies taken together is 1.9%. The growth rate in the emerging and developing economies group is also subdued at 4.2%. The increasing trade tensions and tariff increases between the US and China, the uncertainties caused by the Brexit in Europe, and the adverse impact of the US sanctions on Iran and Venezuela have caused much uncertainty about the global economy.

On the domestic front, the economy has shown a continuous slowdown with the last quarter gross domestic product (GDP) growth estimated at 5.8%, the lowest in the last five years. There has been a steady decline in the rates of savings and investment since 200809, though it has shown signs of bottoming out. The twin balance sheet crisis continues to cripple the investment climate. The manufacturing sector gross value added (GVA) growth was a low 3% in the last quarter and as the capacity utilisation rate was already high, the acceleration in growth can be achieved only with additional investments. The current account deficit has shown a steady increase from 1.9% in 201718 to 2.6% in the first nine months of 201819. The agricultural sector is facing distress and micro, small and medium enterprises (MSMEs) are yet to recover from the twin shocks of demonetisation and suboptimal implementation of the goods and services tax (GST). The exports have been stagnant and in fact, have shown a decline in dollar terms. The withdrawal of the Generalised System of Preferences (GSP) by the US comes as an additional setback. Among other growth engines, even private consumption expenditure which had shown a strong growth momentum last year has been slowing down. The fiscal constraints have curbed the growth of government consumption from 15% in 201819 to 9.2% in the current year. In addition, the unemployment rate at 6.2% was the worst since 197273.

Dear Reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here


To gain instant access to this article (download).

INR 59

(Readers in India)

$ 6

(Readers outside India)

Published On : 20th Jan, 2024

Support Us

Your Support will ensure EPW’s financial viability and sustainability.

The EPW produces independent and public-spirited scholarship and analyses of contemporary affairs every week. EPW is one of the few publications that keep alive the spirit of intellectual inquiry in the Indian media.

Often described as a publication with a “social conscience,” EPW has never shied away from taking strong editorial positions. Our publication is free from political pressure, or commercial interests. Our editorial independence is our pride.

We rely on your support to continue the endeavour of highlighting the challenges faced by the disadvantaged, writings from the margins, and scholarship on the most pertinent issues that concern contemporary Indian society.

Every contribution is valuable for our future.