Crystal gazing the budget announcements from Economic Survey

Chief Economic Advisor KV Subramanian speaks at a media interaction at National Media Center. PTI
The Economic Survey projects a growth rate in the range of 6 to 6.5% for FY 20-21. This is quite an optimistic estimate and will be challenging to achieve given there are no definitive signals of a turnaround yet. The demand continues to be sluggish and the corporate quarterly results still do not give us the confidence of a demand revival. We are likely to achieve a sub 5% growth in the current fiscal year while the survey pegs it at 5%, in line with the advance estimates of the Central Statistics Office(CSO).

The Corona virus being declared a global health Emergency by WHO, with some estimates pegging growth in China to fall to 5% is a big downside risk that possibly has not been factored in these projections. Going by the history of such health scares, let’s review the impacts of the SARS outbreak. It has been estimated in a study by Lee and Mckibbin that the impact of SARS on GDP of China was a negative 1.05% and on India it was 0.04%. While we may take comfort from the estimates that the impact on India was not great, we must remember that SARS was in 2003 when China was the 6th largest economy in the world while it is the 2nd largest now. 

Coming back to the chapters and announcement in the survey, and assuming that the key recommendations were shared with the Finance Minister to be taken as inputs for the budget making, we can come to the following conclusions on what to expect in the budget tomorrow or by way of policy pronouncements subsequent to the budget as has been the experience in the current year:

  • Enabling measures for wealth creation: It has been acknowledged that wealth creation helps all and we need wealth creation first to have wealth distribution. Thus, we can anticipate investor friendly measures in the budget viz. dividend distribution tax measures or capital gains related measures.
  • Allowing companies to fail: The survey argues that markets should operate freely without Government interventions to help certain stakeholders. Thus, we should not expect any specific sectoral bailouts.
  • Rationalisation of subsidies and freebies: The survey argues that they should avoid interventions that distorts the market – be it measures for onion prices or loan waivers or minimum support prices.
  • Import sops for companies in assembly of products: Assemble in India is another slogan that the survey has stressed upon as a job creation measure and we can expect sops for such companies/industries. 
  • More public sector bank mergers: There has been a stress on the PSBs being sub-scale and the need for scale. 
  • Big disinvestment targets: The survey stresses on privatisation and as has been mentioned in some reports that this could be a Thatcher like budget with big announcements related to the same. 
  • Higher fiscal deficits: Given the growth rate projections and no sign of turnaround in private sector investments, we can infer a significant breach in deficit targets.
To end on a lighter note, the Economic Survey presents an interesting Thalinomics and we could possibly have a State wise Thali Index aka Burger Index to perhaps make this a tool to measure cost of living across states or cities in India! 
The author is leader of Economic Advisory Services, PwC India

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