In Samvat 2077, the Union Budget will be the first big announcement to be made in February and this would be of great interest as several threads have to be woven together. The first is the definition of the trajectory of the fiscal deficit path, which has to probably move backwards from what could be 9 per cent of GDP for FY21. Second, the government will have to seriously look at the relief expenses this year which went as cash transfers, free food and rural employment. It is unlikely that the vaccine will be delivered at the time of presentation of the budget and hence must be provided for in the proposals. Third, the government may have to consider the credit guarantee scheme for the SMEs or other sectors to provide a fillip to the economy. There would be high expectations of the same on this count. Fourth, while the GDP growth next year will be high in the region of 9-10 per cent due to a very low base effect, the same would not translate necessarily to higher tax revenue. Hence, this cushion may not be there to a large extent. Therefore, the budget will assume a very important position in Samvat 2077.
A big comfort will be the external sector that will continue to tick along. The faith shown by foreign investors in these pandemic times has been very assuring and can be expected to prevail in the coming year as well. This, combined with a strong current account, will keep the balance of payments (BoP) steady and make the rupee stable in the upward direction.
The challenge, however, will be for the banking sector that will have to grapple with the hard reality as the cushions provided through the pandemic are withdrawn and the rigorous recognition and provisioning norms are back in play. Non-performing assets (NPAs) for this sector would be in the region of 15 per cent by March 2020-end, and the future course will be camouflaged a bit by the restructuring of loans – both SME and large exposures. This can be the black box for the sector that is still an unknown today.
In this situation with improved economic performance going with better corporate earnings, the stock market will take heart, supported by hopefully a global economic recovery.
Therefore, it would be a colourful Diwali next year for sure filled with optimism unlike this year’s muted celebrations which are laced with hope.
Madan Sabnavis is chief economist at CARE Ratings. Views are personal.