Economic Survey 2019 usually contains certain pointers to what may come in the Union Budget.
The survey, written by Chief Economic Adviser Krishnamurthy Subramanian and tabled in Parliament by Finance Minister Nirmala Sitharaman, has set a target of achieving a sustained 8 per cent growth rate on the back of investments to support exports-led growth to achieve the Prime Minister’s goal of making India $5 trillion economy by 2024-25.
Should Friday’s Union Budget take the same line, here are 10 things you can expect the FM to deal with.
1) Consumption and Investments: The survey said investment can be a ‘key driver’ of simultaneous growth in demand, jobs, exports & productivity. It said India needs to almost double its annual spending on infrastructure to $200 billion and the real challenge lies in harnessing private investment.
What to expect: Antique Stock Broking believes the government would spur consumption by increasing disposable income by tweaking tax slabs. Budget is expected to support rural demand by increasing allocation to various rural centric schemes.
2) Jobs and MSMEs: In the chapter titled 'Nourishing Dwarfs to become Giants: Reorienting policies for MSME Growth', the Survey observes that once small firms know that they would receive no benefit from continuing to remain small despite ageing, their natural incentives to grow would get activated. This will generate economic growth and employment. "According to the extant policy, certain targets have been prescribed for banks for lending to the micro, small and medium (MSME) sector that exacerbates perverse incentives to firms to remain small," the survey said.
What to expect: According to Elara Capital, the main thrust of Modi 2.0 Budget is expected to be agriculture, MSME and water sectors. “We expect the BJP election manifesto to guide new spending priorities. Among key schemes, we expect the government to announce collateral-free loans of up to Rs 50 lakh for entrepreneurs, a scheme for providing short-term agriculture loan of up to 0.1mn at 0 per cent interest rate for a tenure of 1-5 years, sugar subsidy for below poverty line (BPL) families, pension scheme for small and marginal farmers and a revamped scheme for piped water supply to rural households apart from announcement of expansion of Pradhan Mantri Kisan Samman Nidhi Yojana to all farmers,” the brokerage said.
3) Push to reforms: The Survey said the moderation in growth momentum was mainly on account of lower growth in agriculture, trade, transport communication and services related to broadcasting, among others.
What to expect: Agricultural reforms (on contract farming, marketing reforms etc) may be announced in order to achieve the government’s stated objective of doubling farmer income by 2022, according to Antique Stock Broking.
4) Boost to infrastructure: Terming highways as a catalyst for economic growth, the Economic Survey said private sector investments in the sector remained ‘tardy’ as such investors are interested in putting their money only on a short-term basis.
What to expect: Brokerage Prabhudas Lilladher believes tax-free bonds may be reintroduced to fund long-term infrastructure projects.
5) Fiscal deficit: The survey estimated fiscal deficit for 2018-19 at 3.4 per cent, the general fiscal deficit -- Centre and states combined -- at 5.8 per cent in 2018-19, down from 6.4 per cent in the previous fiscal.
What to expect: Prabhudas Lilladher expects slight slippage in fiscal deficit target from earlier estimates of 3.4 per cent (Interim Budget) given the social agenda and need to pump-prime the economy amid slowdown in demand.
6) Banking and NBFCs: The survey said performance of the banking sector has improved as bad loans declined in last fiscal, but financial flows are constrained due to a fall in money raised from capital markets and stress in the non-banking financial sector.
What to expect: B Gopkumar, ED & CEO, Reliance Securities said elevated banking sector NPAs and defaults on debt repayment in the non-banking finance sector (NBFC) has created a crisis in the financial sector. Infusing more capital into the public sector banks, removing roadblocks for speedy resolution of IBC cases and incentivising banks to buy good quality NBFC assets may ease the financial sector woes. Similarly, focusing on shadow banking and housing finance companies by creating a liquidity pool would act as a catalyst for growth.
7) Disinvestment target: The Finance Ministry has made progress in strategic sale of 28 state-owned companies, of which three have already been sold off in the previous fiscal. “Progress was made in respect of the 28 cases of Strategic Disinvestment approved by the Government, which are at different stages, with three companies strategically sold off during FY 2018-19, namely, Hospital Services Consultancy Corporation, Dredging Corporation of India (DCIL) and National Projects Construction Corporation (NPCC)," the Survey said.
What to expect: Disinvestment target for FY19 of Rs 80,000 crore was achieved with considerable support from sales within PSUs. Interim Budget had proposed a disinvestment target of Rs 90,000 crore which Prabhudas Lilladher believes might be increased to Rs 1,00,000 crore.
8) Rural distress: The Survey highlighted that there is a need to develop a realtime indicator of rural distress by using data related to work demand by MGNREGA workers.
What to expect: Gaurav Dua, Sr VP, Head – Strategy & Investments, Sharekhan by BNP Paribas, said the government is expected to propose measures to boost consumer demand and ease rural stress to support the economy. The fiscal stimulus could be in form of higher government spending on infra development, which positively impacts core sectors like cement, steel and construction and has trickle-down effect on incomes and consumption.
9) Water management: The Weather Department has projected less rains in some region which could affect the crop production in those areas, the Survey said. It also called for framing new policies to improve water use efficiency in the agriculture sector.
What to expect: Market experts are expecting thrust on improving drinking water availability and river linking. “If Swacch Bharat was key focus of Modi during his first tenure, the “Nal se Jal” is likely to be the focus during his second tenure,” said Elara Capital.
10) Updates on smart city: The Survey also showed that projects worth over Rs 2.05 lakh crore are proposed in 100 cities under the Smart Cities Mission and a significant progress has been made in terms of implementation of these projects.
What to expect: B Gopkumar forsees a rise in capex of railways and defence, higher allocation to smart cities and rural electrification schemes.
(With inputs from PTI)
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