Economy

There is high probability of income support being given to farmers: Ind-Ra Chief Economist

Shishir Sinha New Delhi | Updated on January 22, 2019 Published on January 22, 2019

‘There is high probability of income support being given to farmers and other vulnerable sections of the society by the government in the forthcoming Budget’

Devendra Kumar Pant, Chief Economist, India Ratings, speaks on the overall economy and what the Interim Budget is likely to have in store. Excerpts:

How do you assess the present economic situation?

The economy is gradually returning to its trend growth path after witnessing both domestic and global shocks over the past few years. The two domestic policy shocks were demonetisation and GST. While the impact of demonetisation on consumption demand is nearly over, its impact on the unorganised sector is still lingering. GST, on the other hand, is expected to impact the GDP growth positively over the medium to long-term. In the short term, it has impacted business adversely as its roll-out and implementation gave rise to several problems, especially for small and medium enterprises. A reflection of this was visible in the IIP data, which saw a spurt in growth from November 2017 mainly for restocking, and once this process was over the IIP growth started slowing down.

Services appear to be lagging behind, is it true?

Trade and financial sector are two major sub-sectors in services. Trade growth was hit hard in the fourth quarter of FY17. However, it recovered after that. Trade growth has migrated to lower trajectory from the fourth quarter of FY18, giving an indication of a delayed impact of GST. The financial sector is reeling under pressure due to deterioration in the quality of assets in the banking sector and was also jolted by the liquidity issues faced by the NBFCs, especially in 3Q of FY19. The third component of the services sector is public administration which has remained buoyant due to government expenditure.

Fiscal deficit has overshot the Budget Estimate. Do you think the Government will be able to limit this within the budgeted target?

It is unlikely that the government will be able to meet its FY19 fiscal deficit target.

The pressure is emanating mainly from indirect tax collections, especially GST and the disinvestment proceeds. However, the extent of fiscal deficit is contingent on: a) amount of interim dividend by RBI, b) roll over of expenditure to FY20 (government accounts are on cash basis), c) treatment of compensation cess and IGST, d) capital expenditure control, average capital expenditure in October-November 2018 is significantly lower than average capital expenditure during April-September 2018, and e) decision of the committee under the chairmanship of former RBI Governor Bimal Jalan on RBI’s economic capital framework.

Do you think the Modi Government may announce the Universal Basic Income Scheme in the Interim Budget or even intend to implement it if voted back to power?

The agriculture sector is going through severe stress. While over the years the production has increased, the farmers have failed to realise the bonanza of increased production. This has mainly happened due to the collapse of the prices of agricultural commodities as is evident from food price deflation in CPI. To address this issue, the government may provide support to the vulnerable sections of the society. Therefore, there is high probability of income support being given to farmers and other vulnerable sections of the society by the government in the forthcoming Budget.

Convention says no new major policy proposal is made in the Interim Budget, but there is no rule to prohibit doing so. Considering this, how do you see the Interim Budget?

Although we do not see the Interim Budget for FY20 deviating from the convention, we do see divergence in revenue and expenditure profile for FY19 from the budgeted numbers. This is likely to push the fiscal deficit for FY20 to 3.5 per cent of GDP.

Published on January 22, 2019
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