Pausing to pump-prime

The interim Budget was framed under the backdrop of farm distress and a slowing global economy with risks tilted to the downside. India’s growth in fiscal 2020 will be driven largely by exogenous or luck factors and, to some extent, by budgetary initiatives.

Two of these are the price of crude oil and monsoon. Brent crude at $60-65 per barrel and another spell of normal rains, along with budgetary support, can help lift India’s gross domestic product (GDP) growth rate to 7.3 per cent in fiscal 2020.

The interim Budget anyway had limited ability to push growth, given the Fiscal Responsibility and Budget Management Act (FRBM) constraints.

Clearly, the government has paused on fiscal consolidation and made way for additional spending to support farm incomes and afford tax benefits to the middle class. Farm support of ~20,000 crore proposed will push up fiscal deficit by 10 basis points (bps) this fiscal year.

For fiscal 2020, this is budgeted to be 30 bps above the FRBM target of 3.1 per cent of GDP. The consequent incremental consumption should provide a leg-up to GDP growth.

And between the interim and the final Budgets, there is little leeway, if both adhere to the FRBM goals. Interestingly, when the National Democratic Alliance took reins in 2014, it maintained the key fiscal parameters proposed in the interim Budget by the outgoing United Progressive Alliance II government.

The same story may play out this time as well with some tweaking within the various schemes depending on the outcome of the battle at the hustings. One thing is certain, though — the focus will stay sharp on the hinterland, irrespective of who wins.