Budget 2020 Live news: Nirmala Sitharaman’s make-or-break moment is here

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Will she use escape clause today?

Nirmala Sitharaman may use a so-called ‘escape clause’ provided in the rules to widen the current year’s goal by half a percentage point, and also amend the law to push the 3% goal back by five years.

Message from the CEA

For 2019-20, the govt’s fiscal deficit was budgeted at 3.3 per cent of GDP compared to 3.4 in the previous financial year. However, the current stress in the economy as shown in the survey seems to have given FM Nirmala Sitharaman a clear message that she should go easy on the deficit target and instead open the spending tap a bit more.

Weaker tax revenue

Sitharaman has had to contend with weaker tax revenue as the economy slowed, and lower-than-expected income from assets sales. She may be forced to borrow more and tap the Reserve Bank of India for more dividends to help finance the budget.

6.5% growth in FY21

The Economic Survey 2019-20 tabled today pegged India’s GDP growth for 2020-21 between 6 to 6.5 per cent. Growth in the current fiscal year (2019-20) would come in at 5 per cent, it said.

A number to cheer

The country’s foreign exchange reserves reached a life-time high of USD 466.693 billion after a massive USD 4.535 billion spike in the week to January 24, according to the Reserve Bank of India data.

GST collection crosses Rs 1.1 lakh crore in January

GST collections have crossed the Rs 1 lakh crore mark for the third month in a row in January with improved compliance and plugging of evasion, sources said on Friday.

Markets are open today

India’s leading stock exchanges NSE and BSE will remain open for trading on Saturday, February 1, as Finance Minister Nirmala Sitharaman presents her second Union Budget.

Investment-led cycle: Did it work?

In the past year, the government’s explicit focus has been to pursue an investment-led virtuous cycle of growth – a strategy vigorously advocated in the Economic Survey 2018-19. Clearly, the strategy does not appear to have had any impact, despite complementary fiscal and monetary policies, which slashed the effective corporate tax rates from about 35% to 25% on one hand, and reduced the repo rates by 135 basis points in less than a year’s time, on the other.

Will she boost investment? Investment growth at just 1 percent is going to be the slowest in 17 years. Several attempts to boost growth via the investment channel, though fiscal and monetary measures, has unfortunately not yielded the desired results.

Will LTCG go? Financial markets are expecting relief on Securities Transaction Tax (STT), Long Term Capital Gains Tax (LTCG) and removal of dividend tax.

Will you get a tax cut? After corporate tax cuts in September last year, speculation is rife about possible reduction in personal income taxes. A combination of an increase in the basic exemption limit and/or the introduction of a differentiated tax rate structure for higher incomes may be on the cards.

Investments have failed to pick up despite corporate tax cuts and other stimulus measures, higher FDI inflows, plans to consolidate state-owned banks and monetary easing.

Structural reforms will take time

The government showed its intent to effect structural reforms by merging 44 labour laws into 4 codes. One of the codes on Wages received the Parliament’s nod last year. Other structural reforms are likely to take time.

And the credit does not go to…

Bank credit slowed down significantly in 2019 after consumption was hit. Bank credit slowed to 7.1 per cent in 2019, the second slowest pace in a decade. Transmission has also been a major bone of contention between the RBI and the banks. The RBI has directed banks to peg their interest rates to external benchmarks as a means to effectively reflect the change in policy rates.

Where’s the money?

An expenditure-led boost to economy also looks tough as resource mobilisation during a slump is a challenge. Also, a higher borrowing target will shrink the space for private sector borrowers.

  • FY19 (RE): Rs 3.17 L cr
  • FY20 (BE): Rs 3.39 L cr
  • FY20: Rs 2.14 L cr (till Nov)

The tax affect

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.

We have a fiscal fitness worry

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 per cent. 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.

Inflation on the way up

Consumer price index (CPI)-led inflation ticked up sharply to 7.35 per cent 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.

How’s the josh? Low sir

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 per cent, the slowest in 17 years. Here’s a quick look at how different numbers stack up:

  • 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)

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