Economic Survey 2020: India forecasts faster economic growth, warns of fiscal challenge
FM Nirmala Sitharaman will present the budget for the coming fiscal year on Saturday.
India's government forecasts economic growth will pick up to 6.0 per cent to 6.5 per cent in the fiscal year beginning April 1, but warned it may have to miss its deficit target to revive growth.
India is facing its worst economic slowdown in a decade. Growth fell to 4.5 per cent in the July-September quarter. Consequently, the budget deficit may need to exceed this year's target, 3.3 per cent of gross domestic product, the government said in an economic survey released on Friday.
Finance Minister Nirmala Sitharaman will present the budget for the coming fiscal year on Saturday.
"Going forward, considering the urgent priority of the government to revive growth in the economy, the fiscal deficit target may have to be relaxed for the current year," Krishnamurthy Subramanian, chief economic adviser to the finance ministry, said in the report.
The government estimates GDP will grow 5 per cent this fiscal year, which ends on March 31. That would be the slowest growth since the global financial crisis of 2008-09.
Some economists believe the survey's growth forecast is too optimistic. They point out economic recovery remains fragile; inflation is accelerating and consumer demand and investments are likely to decline, even though the central bank cut interest rates by 135 basis points in 2019.
In the coming budget, Sitharaman is expected to announce a host of economy-reviving measures. Income tax cuts, higher spending on infrastructure and incentives for real estate are likely. So is a plan to revive stressed shadow banks.
However, the slowdown in growth has reduced tax revenues. The government may be forced to channel its increased spending through quasi-sovereign bodies, which would not be included in its deficit calculations.
Friday's report said India would need to spend about $1.4 trillion in the next five years to expand the economy to $5 trillion from the current $2.8 trillion. It gave no projection for the deficit. Economists believe that is around 3.8 per cent.
Following are the highlights of the Economic Survey 2019-20 tabled in Parliament on Friday:
* GDP growth pegged at 6-6.5 per cent in fiscal year starting April 1, up from 5 per cent in current fiscal
* Fiscal deficit target for current fiscal may need to be relaxed to revive growth
* Uptick in growth projected in second half of current fiscal based on 10 factors including higher FDI flows, build up of demand pressure, positive GST revenue growth
* Survey asks government to deliver expeditiously on reforms to revive growth
* Ethical wealth creation key to India becoming USD 5 trillion economy by 2025
* Share of formal employment increased from 17.9 per cent in 2011 -12 to 22.8 per cent in 2017-18 reflecting formalisation in the economy
* Theme of Survey is wealth creation, promotion of pro-business policies, strengthening of trust in the economy
* To achieve GDP of USD 5 trillion by 2024-25, India needs to spend about $1.4 trillion over these years on infrastructure
* 2.62 crore new jobs created in rural, urban areas between 2011-12 and 2017-18 among regular wage/salaried employees
* 8 per cent increase in regular employment of women in 2017-18 over 2011-12
* Excessive government intervention in markets, especially when the market can do the job of enhancing citizens welfare perfectly well, stifles economic freedom
* Debt waivers disrupt the credit culture, reduces formal credit to same farmers
* Suggests government to systematically examine areas where it needlessly intervenes and undermines markets
* Calls for improving governance in public sector banks, more disclosures to build trust
* Calls for measures to make it easier to start new business, register property, pay taxes, enforce contracts
* Easing of crude prices lowers current account deficit; imports contract more sharply than exports in first half of current fiscal
* Declining inflation from 3.2 per cent in April 2019 to 2.6 per cent in December 2019, reflecting weakening demand pressure in the economy
* GST collections grew by 4.1 per cent for the centre during April-November 2019.
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