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Last updated: 20 Jan, 2020  

budget-indiaTHMB.jpeg Budget 2020: Urgent need to spur demand

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Bikky Khosla | 20 Jan, 2020

Retail inflation spiked to a 65-month high at 7.35 percent in December from 5.54 percent in November. Many economy watchers expect inflation to remain high in January as well. Meanwhile, GDP in 2019-20 is estimated at an 11-year-low of 5 percent. Other challenges -- such as high unemployment and low productivity in key sectors – also abound. The Union Budget 2020 will be presented against such a macroeconomic backdrop.

Optimists give a bit better picture. They view that there are some preliminary signs – such as robust growth in both manufacturing and services sectors in December, as reflected by the PMI index, and rebound in industrial output in November after three consecutive months of contraction -- that the economy has bottomed out. As far as inflation is concerned, they view that it should cool down gradually with seasonal supply shocks becoming milder.

No doubt, both sides of this argument have merits, but what is more important is that they all agree on one crucial point that Budget 2020-21 must focus on reviving demand. The economy has long been suffering from demand slowdown and to arrest it there is no other way out for the government but to spend more. No doubt, it will be a difficult task due to lower revenues, but if we look around and see whatever is happening, this is the call of the time.

But what about fiscal deficit! In the last Budget, the fiscal deficit target for 2019-20 was revised to 3.3 percent, but with the deficit amount hitting 114.8 percent of total estimate at Rs 8.07 lakh crore at the end of November, the target now seems unattainable. Also, economists unanimously view that at this juncture any obsession with fiscal deficit numbers would prove fatal and instead the government should focus on reviving growth.

I invite your opinions.

 
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