Given recent slowdown in the economy there are expectations that the budget would contain bold measures to boost the economy. Tight fiscal and monetary policy over the past few years coupled with major structural changes have taken a toll on growth which was further exacerbated post the IL&FS crisis and its fallout. This is reflected in the GDP numbers which slowed down to 4.5% in Q2FY20 from 8.0% in Q1FY19.
Given the shortfall in tax collections as well as lower non tax revenues (on account of shortfall in disinvestment targets), markets are concerned about fiscal slippage in FY20 and FY21. However in the backdrop of the current slowdown we believe that fiscal slippage is necessary and will go a long way in boosting growth given that India doesnt have a twin balance sheet problem like 2013.
While the corporate tax cuts was a game changer move by the Government and would go a long way in attracting investments over the medium term we believe that more needs to be done in order to boost consumption demand which has slowed down sharply from 10.6% in Q4FY18 to 5.1% in Q2FY20. Given the severity of the slowdown we feel that expansionary fiscal and monetary policy is the need of the hour to revive the economy.
