Budget measures too long term, unlikely to meet growth targets in FY21: Crisil

Economists at domestic rating agency Crisil doubt the budget attaining its targets on growth, given the rural boost and thus consumption and revenue realisations, saying planned budgetary measures are not expected to provide a short-term boost. Noting that the economy is facing its worst slowdown in over a decade, a Crisil report has said this was because consumption and investment have stopped firing for too long.

If at all the GDP were to clip at the projected 5.7-6.6 percent in FY21, it will be thanks more to the base effect-FY20 growth at an 11-year low of 5 percent, down from 6.1 percent in FY19 on the back of a 48 year low nominal growth of at 7.5 percent in FY20. "The given its tied hands, the government has aimed at some measured moves in the budget to bolster growth. Most of these, however, are not expected to provide a short-term boost," says the Crisil report.

"In the absence of growth kickers, growth pick-up in fiscal 2021 is expected to be largely led by the base effect and supported by somewhat better farm income (led by a good rabi crop) and the delayed impact of monetary easing. Critical to this forecast is the assumption of a normal monsoon in the next season and benign global crude oil prices," it warns. "If that sounds bad, the financial sector stress has been looping into real sector weakness, dragging down growth some more. The external front has also landed the domestic economy a few blows. What makes this "shrinking" feeling stranger and last longer is the long-overdue financial sector clean-up, at a time when the economy is suffering from many other ailments.

"To be sure, monetary policy has done its bit, but with moderate and slow success. The Reserve Bank cut the repo rate cumulatively by 135 basis points through calendar 2019, but lending rates has tarried with just 50-bps decline," the report notes. The additional fiscal space of 50 bps more over FY20 budget estimate projection for FY21 (fiscal deficit projected at 3.5 percent of GDP next fiscal against the glide path of 3 percent) is to be funded by aggressive disinvestment, asset monetisation and telecom revenues, optimistic tax-buoyancy assumptions and some tightening in overall expenditure. But the space so created is being used to fund capex and rural sector spending that support consumption, it says.

It can be noted that this is the fourth consecutive budget that the Modi government has missed the original budget estimates on deficit numbers. Despite tight fiscal conditions, the budget makes room for higher capex. Overall capex is budgeted to increase 18 per cent in fiscal 2021. A large part of this is infra spending. But ironically, the overall infrastructure spending is budgeted to decline 7 per cent in FY21 because of lower reliance on extra budgetary spending through central public sector units despite higher budgetary support.

Similar is the projected slowdown revenue expenditure in fiscal 2021, led by lower burden of food, fuel and fertiliser subsidies.

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