- As the annual budget is to be presented in two weeks, the Union Finance Minister will find herself in a tricky situation simultaneously battling out mounting challenges vis-à-vis fiscal policy, a definite road map to resurrect the flailing economy, grave numbers of unemployment, unyielding stimulus packages on expected lines, misfiring GDP contracting unheard of 23% in the first quarter, stuttering core sectors struggling to pick-up, and the list is veritably endless. Make no mistake, the Finance Minister Sitharaman has had to deal with a more challenging and uncertain economic environment in living memory unlikely to have been faced by her predecessors.
PC: centage
- Reams and reams have been written, dissected, presented, debated, and passionately discussed on the challenges posed by the pandemic-triggered compression in the national output that has been forecast for 2020-21 by all stakeholders, including the renowned economists as well as experts from the field. Apart from these challenges staring at the economy, the government is also expected to consider and weave in the recommendations of the 15th Finance Commission to come out with an all-encompassing package to resurrect the country’s economy.
- Everybody associated with scrutinizing the Budget will be keenly observing two main aspects that are extremely crucial in delineating the roadmap envisaged by the Union Finance Ministry. First is the fiscal policy the Budget is expected to chart out through taxation and spending measures. The second factor, which is more critical than the first, is to spell out the overall policy position intended to boost sentiments. The moot point to ponder over here is how bad the economic damage suffered has been in the complete scheme of things from the economy’s perspective.
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- The last few months have given cause for some cheer as compared to dreadfully bleak first months soon after the lockdowns as positive signals emerging from the ground suggests the compression of GDP may be in the range of 7-8%, a significantly lower level than forecast earlier. Unfortunately, it is not clear as to what extent the real damage has been which is not completely visible yet. There are no verifiable accounts available to ascertain what happened to smaller firms and the informal sector, which forms huge percentages to ignore.
- Note that the government has suspended the operations of the Insolvency and Bankruptcy Code for a year till March-end suggesting that fiscal policy needs to be flexible enough to deal with what comes after the support system is invariably withdrawn. Also, fiscal policy will leave little room for the government to maneuver vis-à-vis the direct tax framework right now. Though significant changes were made to corporate taxes towards the end of 2019, these measures had little time or occasion to make an impact. The most viable option left for the FM is to prime-up spending to influence the economic trajectory takes-off significantly.
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- Therefore, it is inevitable for the Government think-tank to come out with one more fiscal stimulus to revive the economy. In a classic case of cascading effect taking natural precedence, if the economy must revive the durable job expansion also has to see an increase from the unemployment data of 9.1%. Thus, a stimulus package with an emphasis on spending should be the way forward.
