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Friday, 29 March 2024
Monday, 03 Feb 2020 11:00 am

India's New Budget to Provide Growth in Long Term, no immediate effect expected

“We see the budget as largely neutral for growth and inflation,” said Nomura economist Sonal Varma, adding that the financial sector’s problems could further delay any recovery. The government has proposed increasing spending to boost consumer demand and investment but it could not go far enough because a slowdown in revenue receipts tied its hands, economists said.

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India’s new budget is unlikely to drag Asia’s third- biggest economy out of its worst slowdown in more than a decade as the government has proposed only moderate spending increases and small cuts in personal taxes, economists said on Sunday.

They said there was a risk the government might miss its fiscal deficit target for 2020-21 as it was dependent on raising almost $30 billion from the sale of stakes in state-run firms and financial institutions to meet ambitious revenue goals.

In its budget for the year starting in April unveiled on Saturday, the government relaxed its fiscal deficit target so it could spend an nearly $15 billion more, mainly on infrastructure and farming, while pushing ahead with privatisations.

Economists and industry leaders said the budget proposals would provide some support to growth over the longer term but were insufficient to give it an immediate boost.

India’s economy is forecast to grow 5% in the year ending in March, its weakest pace in 11 years, ratcheting up the pressure on Prime Minister Narendra Modi, who is already facing backlash over a socially divisive citizenship law.

“We see the budget as largely neutral for growth and inflation,” said Nomura economist Sonal Varma, adding that the financial sector’s problems could further delay any recovery. The government has proposed increasing spending to boost consumer demand and investment but it could not go far enough because a slowdown in revenue receipts tied its hands, economists said.

Rating agency Moody’s Investor Service said the budget highlighted the fiscal challenges from slower real and nominal growth, which may continue longer than the government expects.

Nomura said annual growth in gross domestic product (GDP)most likely slipped to 4.3% in the last three months of 2019, after dropping to 4.5% the previous quarter, its slowest in more than six years.

Economists said India risked missing its budget deficit target of 3.5% of GDP in 2020-21 as the government’s revenue growth target of nearly 10% depends on raising almost 2.1 trillion rupees ($30 billion) from privatisations.

Investors and consumers were also disappointed by the budget as no new incentives were offered for the beleaguered financial sector and housing market while it wasn’t clear whether proposed changes to individual taxes would result in net gains.

“The tax cuts won’t translate into much benefit for taxpayers,” said Amit Maheshwari, Partner, Ashok Maheshwary & Associates LLP, a tax consultancy, adding that they could discourage saving and help push market interest rates higher.\

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Neha Pandey

Aware of her elements, Neha writes the best articles across industries including electronics & semiconductors, automotive & transportation and food & beverages. Being from the finance background she has the ability to understand the dynamics of every industry and analyze the news updates to form insightful articles. Neha is an energetic person interested in music, travel, and entertainment. Since past 5 years, she written extensively on sectors like technology, finance and healthcare.


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