Making headway

January is a hopeful month for Indian economy. Tirade over the cyclic downturn that prevailed has a retrospective effect. Government ought to do more. This sentiment leads us to more intricate discussions over fiscal matters and those are never complete without bringing in the pivotal point of fiscal and monetary policies — The Budget. Likely to be held on February 1, Budget 2020 has been touted to be a special challenge for incumbent Nirmala Sitharama as she prepares her Parliament speech for only her second budget. Last year, prior to the Lok Sabha elections, the economy was deteriorating but nationalism drove the mandate in favour of the ruling-NDA. India understood that the incumbent government required time to ameliorate the situation, especially since the same government had faced criticism imposing twin challenges of demonetisation and GST. It was only in 2019 that full-scale of these challenges was realised as GDP growth rate hit its 6-year low of 4.5 per cent while the Central GST collection fell short of the Budget estimate. A Central GST collection for the period April–November was Rs 3,28,365 crore as put against a Budget estimate of Rs 5,26,000 crore — falling short by approximately 40 per cent on the occasion. This had its bearing on the Centre's revenue targets. But come November, the GST collection crossed the 1 lakh crore mark for the first time. It was a positive development but deemed seasonal since festivals sentiment was what largely spearheaded expenditure. However, a second consecutive 1 lakh crore-plus GST collection for the month of December is a real gain. A third successive month would mean some respite in the annual revenue targets, especially since both Centre as well as states are reeling under the GST revenue deficit. Despite strong winter months in the collection, the annual target will be missed but that is the price we pay for the prevailing slowdown. What concerns more at this point is how the policy is steered to motivate consumer sentiment as well as drive the economy out of this adverse period. It is interesting to note that the Centre's revenue gap is not all because of an underperforming collection inflicted by low consumer expenditure. Added to the fray is the corporate tax cuts that the finance minister so audaciously yet prudently announced in October. The tax paid by corporates on profits they earn was cut to its lowest and that invariably burned a hole in Centre's revenue bag — as big as Rs 1.45 lakh crore. Measures like altering GST rates for several items across the last year did not revive the strong spending sentiment. In hindsight, the double impact of patchy collections and tax cuts did not fare well for Centre's revenue targets. Therefore, the slowdown played its impact and several rate cuts by RBI did not mean much amidst the gloomy market climate. Although the government's denial and prolonged effort to continue taking measures to boost the economy fared well in the stock market — enough to create an anomaly where stock market boomed while the slowdown prevailed — the real improvement was nowhere to be found.

But a new year has its perks. Second Quarter of the financial year was not as expected is why the third must be looked upon with a focussed eye. As the new decade dawns upon, figures and facts will have to be laid out and deliberated upon to draw a correct and plausible trajectory for the revival of the economy. It has been understood that the first fix has to be on the dwindling demand. Nirmala Sitharaman has the task to revive consumer spending and make it run a constant line. Secondly, growth has to be boosted. The two factors that need attention for growth are consumption and investment. It has been widely discussed that investment has to be compounded for India to fare well in these times. While investment is one aspect, consumption is equally important. First two quarters have not been very optimistic for consumption and the finance minister has a task to push consumption. Easier said than done, the task has multiple ramifications. For instance, if personal income tax is cut, no doubt it brings more money in the hands of consumers to spend but a reverse — and grossly negative — the impact of this can be the consumer saving the extra buck rather than graciously spending to fill the government's revenue kitty. To prevent this unwanted situation, rise in incomes and easier availability of credit can be ideal for making the consumers spend. Picking the right move at this moment is of paramount importance to the nation as an economy since the turn of the calendar has shown feeble signs of recovery and if tapped correctly, siting opportunities can yield us in plenty. It is true that all sectors would be looking upon the finance minister to give them some sort of relief — as is the general expectation come every budget. But it should be realised that a collective relief for the nation is of the essence here. That collective relief will guide India on a path of economic recovery, allowing us to register higher GDP growth rates. The massive plan to invest $1.4 trillion in infrastructure has shown the government's intention to drive at the perceived vision of $5 trillion economy but its actions on the ground will tell the real tale. And, just as it so happens, the Budget 2020 will be the first real-look of government's intention to steer the economy towards that direction.