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A Longer Wait for Rescuing the Economy

Budget 2020–21 is long on narratives, but short on boosting demand or increasing purchasing power.

 

The declining consumption and investment and sharp reduction in the gross domestic product (GDP) growth had raised high expectations that the budget would have substantial measures to kindle animal spirits and revive the investment climate and growth in the economy. With price levels showing an upward trend, and after the reduction in the repo rate of 135 basis points since January last year, there was very little scope left for action on monetary policy, and the baton had been passed on to the government for fiscal policy initiatives. The budget provided a great opportunity to propel the economy by initiating structural reforms. The hope was kindled even more as the Economic Survey asserted, “A sharp decline in real fixed investment induced by a sluggish growth of real consumption has weighed down GDP growth from H2 of 2018–19 to H1 of 2019–20” and “The government must use its strong mandate to deliver expeditiously on reforms, which will enable the economy to strongly rebound in 2020–21.”

Unfortunately, the budget speech of the finance minister does not admit that there is a problem. It states, “The fundamentals of the economy are strong and that ensured macroeconomic stability.” When the existence of the problem itself is denied, it is difficult to find solutions, and despite the long speech, there was not enough to enthuse the markets or the common man. While the lofty goals of doubling the farmers’ income or leapfrogging into a $5 trillion economy are repeated, there are no policy initiatives that can help the revival of the investment climate, boost consumption or increase exports. The policies such as reforming the Agricultural Produce Market Committee (APMC) Act, land leasing, or contract farming have to be calibrated by the states. Nothing has been done to reform the subsidy regime or to increase investments in farm infrastructure, irrigation, storage marketing and processing. Although the budget speech has 16 action points on agriculture, irrigation and rural development, the budgeted allocation of ₹2.83 lakh crore is higher than the budget estimate for the previous year by just 2.5% and the revised estimate by 13.2%.

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Updated On : 12th Feb, 2020

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