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.
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.
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
prove fatal and instead the government should focus
on reviving growth.
I invite your opinions.