Budget 2020-21 crucial for FM Sitaraman and Modi government
30 January 2020
Finance minister Nirmala Sitharaman will be performing the most difficult tight-rope walk on 1 February when she presents of Union Budget 2020-21 on 1 February, even as the government stares at plummeting revenues and soaring expenditure.
This will be the second Union Budget that finance minister Nirmala Sitharaman is presenting. The FM will begin the India Budget 2020 speech at 11 AM on 1 February.
While the budget proposals on ways to raise and spend resources remain an enigma, Budget 2020-21 will be crucial for FM Sitharaman in the backdrop of a deceleration in GDP growth and depleting revenues of the government.
The economy is in a strange spot where expectations of growth stimulus and tax reliefs to boost consumption remain high while the Centre has little leeway left for revenue raising exercises.
In the run-up to Budget 2020 presentation, the finance ministry had sought ideas, recommendations, and suggestions for Budget 2020-21 from stakeholders, including the general public.
FM Sitharaman and Prime Minister Narendra Modi had also held a series of meetings with ministry officials, industry bodies to ponder over issues that may be addressed in Budget 2020.
This is because the slippage in economic growth rate to 4.5 per cent in the July-September quarter has been the worst in a decade. Also, the falling growth is seen to have coincided a worsening of job prospects for millions of youth entering the workforce each year.
The International Monetary Fund this month cut its forecast for India’s growth to 4.8% for the fiscal year ending in March and lowered its forecast for growth in the coming financial year to 5.8%.
The much celebrated slashing of corporate tax rate has only helped to make a big dent in the government’s direct tax revenue. And, despite the monetary easing by the central bank, investments have failed to pick up.
While investors continue to seek fiscal stimulus in the budget for the year beginning 1 April, economists expect the government to increase spending on roads, railways and rural welfare to revive growth.
But, with the central government all set to miss its deficit estimates for a third straight year as revenue estimates fall short by nearly Rs3,00,000 crore, the finance minister will have to give fiscal discipline a go-by to find resources to feed rising demands.
Sitharaman, who will present her second full-year annual budget in Parliament, could defer the earlier target of cutting fiscal deficit to 3 per cent of gross domestic product in 2020-21.
The government will also have to find resources to finance roughly Rs2,00,000 crore of off-budget expenditure.
It is more likely that the finance minister will try to spread expenditure outlays for at least the remaining years of the present government as she tries to balance revenue and expenditure of the government.
Alternatively, the budget could push privatisation and apportion a bigger share to private investors, after missing the target by a wide margin this year, according to some reports.
This, combined with sale of stake in key public sector enterprises, including national carrier Air India, Bharat Petroleum Corporation, could help the government ease fiscal pressure on budget.