Government all set for a back breaker Budget  

Growth slowdown has hit the government’s finances hard with the fiscal ending with a likely revenue shortfall of Rs 2 lakh crore


NH Web Desk

Budget 2020 is being presented in the backdrop of economic growth likely hitting a decadal low of 5%.

As forecast by the first advance estimates of the government early this month. The nominal growth is projected to fall to a 42-year low.

Growth slowdown has hit the government's finances hard with the fiscal ending with a likely revenue shortfall of Rs 2 lakh crore.

Poor economic strategy of the government has left no hopes of relief to the common man. As per the advance estimates, several key indicators have fallen to multi-year lows this fiscal.

Among them is investment growth, which is set to shrink to just 1%, the slowest in 17 years.

GDP growth: 5% (Lowest in 11 years)

Pvt consumption: 5.8% (Lowest in 7 years)

Investments: 1% (Slowest in 17 years)

Manufacturing: 2% (Lowest in 15 years)

Agriculture: 2.8% (Lowest in 4 years)

Consumer price index (CPI)-led inflation ticked up sharply to 7.35% in December, moving out of RBI's inflation band.

The sharp escalation came on the back of vegetable prices edging upwards during the month.

The RBI had cut repo rate six times last year for a total of 135 basis points, before pausing in its December policy in view of higher inflation.

Current indications are that the apex bank may wait for inflation to soften, and for the previous rate cuts to show effects before effecting another policy action.

The government, in all likelihood, will breach this year's target by as much as 50 basis points or 0.5%.

It translates into a fiscal deficit of 3.8%, a steep slippage from the Budgeted target of 3.3%.

If the government decides to include off-Budget liabilities, it could lead to a even bigger slippage.

If the government decides to stick to the fiscal glide path, it will have to crimp expenditure, which in turn will hurt growth.

The likely tax shortfall of Rs 2 lakh crore will crimp government's fiscal space, precluding any rise in spending.

This will also play out in terms of any further fiscal stimulus owing to concerns over slippages.

Experts feel that any cut in personal income tax may not trigger consumption as it's likely to benefit a very small base.

An expenditure-led boost to economy also looks tough as resource mobilisation during a slump is a challenge.

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