Budget has no roadmap for a $5-trillion economy

V Gopalan | Updated on February 10, 2020

Achieving this goal requires a strong investment climate and fixing the issues facing key sectors of the economy

India has faced some major economic challenges in financial year 2019-20. Real GDP growth, at 5 per cent, is the slowest since the global financial crisis of 2008-09. Manufacturing sector growth, at 2 per cent, is the lowest in the last 13 years; construction sector, one of the largest employment providers, grew at 3.2 per cent against 8.7 per cent in 2018-19 — a six-year low. And, growth in investments was at less than 1 per cent, the lowest in 15 years.

The Centre has set a GDP target of $5 trillion by 2024-25; it is only $2.9 trillion now. Achieving an additional $2.1 trillion would mean a 72 per cent increase in the remaining five years. The projected growth in 2020-21 is only 6.5 per cent.

To become a $5 trillion economy, it is imperative to have a strong investment climate. The government’s dedicated task force with policy guidelines framed in this regard should focus mainly on capacity creation to drive demand and generate employment; the unemployment rate is at a 45-year high.

Increase in labour productivity through investments in technology is also of high priority. In 2018-19, mining, manufacturing and electricity grew at 2.9 per cent, 3.9 per cent and 5.2 per cent, respectively, while all of them witnessed a fall in growth in April-November 2019 at (-) 0.1 per cent, 0.9 per cent and 0.8 per cent, respectively.

Economic slowdown

We do not know whether the worst of the economic slowdown is behind us. Exports are not growing for taking optimum advantage of our forex reserves. The roadmap for achieving the high growth rate required to meet the targeted $5 trillion GDP has not been explicitly spelt out in the Economic Survey nor the Budget proposals.

The Finance Minister was happy to announce that in last two years 60 lakh new taxpayers were added, but did not mention that in last 16 years the return filers increased by 62 per cent while taxpayers rose by only 22 per cent. Also, less than 4 per cent of taxpayers account for 60 per cent of the tax income.

The twin object of increase in percentages of both return filers and taxpayers has to be achieved. Else, all the changes proposed will not produce the desired results.

The Finance Minister has taken shelter under the FRBM Act, which provides some leeway for slippage in fiscal deficit, for the current and the next two years as well. This is in addition to the 37 per cent and 11 per cent reduction in food and fertiliser subsidies, respectively, and cuts in various other budgeted expenses.

With regard to income, expenditure and deficits, if one does an item-wise analysis, it will be obvious that for want of and due to shortage of resources, a few expenses have been either postponed or not incurred. Otherwise, the fiscal deficit would have gone beyond 3.8 per cent.

The Finance Minister mentioned in the Budget speech that our external debt was 48.7 per cent of GDP in March 2019 compared with 52.2 per cent of GDP in March 2014.

This was so as per the Budget Estimate of 2019-20, and is set to climb in the Revised Estimate of 2019-20. As much as 80 per cent of our existing level of external borrowings of $558 billion was long term in the current and in the previous years. With no major capital expenditure proposed in the Budget and a substantial part being towards revenue expenditure, maintaining the external borrowing at a level of 80 per cent won’t bode well for the economy.

Allocation of ₹2.83 lakh crore to the agriculture sector and for rural development would aid rural growth and help in creating jobs. The FMCG sector hopes to recover from its current sluggish trend as more spending is expected to happen.

A worrying factor is that the allocation for defence is the lowest in five decades. The allocations for water, power and roads may not be adequate considering the size of the country and need for these resources.

India’s macroeconomic indicators are basically sound. The need of the hour is to create demand and employment, fix the issues facing the auto, construction, manufacturing, mining and electricity sectors, lay a roadmap for boosting exports, increase the percentage of taxpayers, and chart out a year-wise plan for the next five years to help the country become a $5 trillion economy.

The writer is a management consultant

Published on February 10, 2020

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