With bad news on all fronts, the government needs to inject positive sentiment and target growth
The Journey So Far
Bold targets have been set for India becoming a five trillion dollar economy but all economic data suggests it will be a daunting challenge. Growth has plummeted and India has lost the coveted fastest growing economy tag to China.
The fiscal deficit touched 52 per cent of the budget estimate for the full year in the first two months of FY20. The aim is to restrict the deficit target to 3.4 per cent of GDP, but mounting expenditure and pressure to spend more coupled with declining revenues could mean that India slips on this.
On the inflation front, consumer price inflation has been a percentage point lower than the targeted four per cent. Headline CPI inflation rose to 3.2 per cent in June from 3 per cent in April-May.
In the April-June 2019 quarter, the Index of Industrial Production (IIP) grew at 3.6 per cent as against 5.1 per cent in the same period the previous year. The fall in factory output was led by a decline in manufacturing and mining activity.
The rupee has slid from 68.75 to a dollar on July 30 to 71.9 on September 5, on weak economic data and negative market sentiment
In addition to the slowing economy, the rupee is sliding as foreign portfolio investors (FPIs) turned negative after an enhanced tax surcharge announced in the budget restricted their activity. It has since been revoked.
Assurances have been given on ending ‘tax terrorism’. Income tax orders and summons notices will be issued through a centralised computer system from October 1.
The ‘angel tax’, levied on startups, has been revoked
Is It Enough?
The biggest challenge the economy faces is a breakdown in confidence among all stakeholders. The government has to restore confidence through policy predictability, take more shortterm measures to improve liquidity and act fast on its promise of minimum government. It also needs to pursue its disinvestment agenda with intent.
The Unfinished Agenda
The economy expanded at its slowest in 25 quarters—5 per cent in the first quarter of FY20. The Centre has to frontload expenditure—in terms of infrastructure spending—to spur economic activity
Industrial production growth slipped to a fourmonth low of 2 per cent in June. Measures needed to arrest the slowdown
Rising food inflation, sliding rupee are other major concerns
Give employmentgenerating sectors such as textiles and manufacturing a push
Improve ease of doing business