'Fiscal support for growth in 2020 decade likely to be lower'

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SME Times News Bureau | 23 Jan, 2021
The fiscal support toward economic growth in the 2020 decade is expected to be lower than in the previous corresponding period, Motilal Oswal Financial Services said in a report.

According to the report, the likely lower support will be caused due to Centre's efforts for fiscal consolidation.

Notably, the report pointed out that government has shown 'remarkable' resistance to any major stimulus, which provides further confidence that Centre's finances could improve consistently over the next decade.

"While the fiscal deficit would remain above 3 per cent of GDP for the next few years, the path to fiscal consolidation would be watched closely," the report said.

"The faster the fiscal consolidation, the lower would be the fiscal support toward economic growth and vice-versa. It could take many years for the general government to bring its debt-to-GDP ratio (at 86 per cent of GDP in 2QFY21) back down to pre-COVID levels (of 68 per cent)."

As per the report, the growth in the 2000s decade was led by investments, while consumption was the key driver in the 2010s decade.

"The 2020s decade could be seen as the 'Healing Decade,' wherein all efforts are toward just one objective - to regain lost economic strength."

"If, however, this healing does not happen, it is very likely the economy would continue to crawl sideways - with some years of decent growth and some years of weak growth - leading to subdued average growth."

Besides, the report cited that Covid impacted 2020 led to extreme behaviors, pushing financial savings sharply higher, this would start reversing from 2021 as things begin to normalise.

"Whether Indian households would keep their financial positions healthy is an important prerequisite for better growth performance over the long term."

"As households and the government remain cautious on spending and repair their balance sheets, a sharp and sudden surge in non-government investments is unlikely. All of these factors imply that while economic revival may be limited over the next few years."

Accordingly, the improved balance sheets of economic participants - along with sustained improvements in some key areas such as revival in real estate and manufacturing would set the stage to move from low to high-single-digit growth before the end of the 2020s decade.