Panel Discussion - Budget 2020: Hit or Miss ?

Posted on: 2020-02-21 13:11:33
OPENING REMARKS BY DR. NIRANJAN RAJADHYAKSHA

Q) Why is the budget important?

Key points: 1. Total government spending (Centre + State) makes approximately 25% of the GDP which is one of the reasons why it is so significant.

2. Tax proposals come under the purview of the Budget which influences the behaviour of citizens, among other things.

COMMENCEMENT OF THE DISCUSSION

 

Q) What are the immediate economic challenges that we are facing as an economy? (Question asked to Mr. DK Joshi)

Key takeaways from the answer: Sector wise breakdown of the challenges –

  • Farm Sector –
  • Food inflation has dropped
  • Income shift has happened from the rural to the urban sector
  • General decline in wages
  • Resultantly, rural consumption has suffered.
  • This happened 3-4 years ago tentatively
  • Financial Sector –
  • Finance being the lifeblood of an economy, has been in a rut for a while especially since the Modi Government as they have been taking active measures to clean the ‘muck’ in this sector and increase transparency.
  • All these measures have caused a slowdown to persist in this sector
  • This slowdown has led the economy to spiral.
  • Sector specific issues –
  • Sector specific issues were also spurring. For example: Auto sector, real estate sector etc – the slowdown in these sectors had a resultant impact on the financial sector which has led the economy to spiral.
 

Q) How has the state of confidence been in terms of investment, consumption & other consumer/citizen related behaviour? (Question addressed to Mr. Saugata)

Key takeaways from his answer:

Some changes in the economy that influence/have influenced the state of confidence -

  • There has been a visible/evident transition in people’s preferences as a whole. This includes consumption and buying patterns which is intricately linked with a behavioural change in people in an overall sense. An example of this is that young people don’t aspire to have cars anymore, which is observed in the fact that the age of auto-loan seekers is increasing. This sheds light on the state of ‘confidence’ in an economy.
  • This behavioural change in people in terms of them not wanting to buy a home of their own & preferring to rent out spaces instead has also contributed in depressing the economy.
  • India is also becoming increasingly data-rich & the largest data source/reservoir that we have in the country right now is GST.
 

Q) What is going wrong with Corporate India?

Key takeaways from Mr. Debopam’s answer:

  • The history of Corporate India (since 1980s) that talks about the state of business confidence now:

Indira Gandhi tried to bring corporates closer to the government by relieving private licensing. The growth rate around this time was sluggish & complacent which is why it was popularly referred to as the Hindu rate of growth. The result of major macro-economic reforms (LPG being one of the major ones) then led to faster more efficient business & economic growth.

  • Currently, the major problem lies in the price of capital i.e., interest rates. The rates of interest being exorbitant have discouraged companies to borrow & invest extensively.

COMMENTS & INSIGHTS ON THE BUDGET (AN ANALYTICAL BREAKDOWN)


Mr. Saugata’s comments on the Budget:

  • RBI’s capacity utilisation rates are coming down which means that private corporates are not investing & borrowing as much as they are expected to do. This also talks about the general decline in the state of confidence in the economy.
  • Quoting Mr. Saugata: “Hence, the government has done fairly well on compensating for this lack of investment on the private corporates’ end.”
  • Further, Mr. Saugata also believes that the government should reduce its subsidy allocation for food and fertilizers specifically as there “is a serious need for some expenditure control.”
Mr. DK Joshi comments on the Budget:
  • The government has cut corporate tax rate to boost private investment which is not efficient. If the government would have extended their support towards households & had taken efforts to boost household consumption, then that would have been more efficient as that would have been a step in the right direction to tackle the depression in the economy.
  • Further, the government is focusing too much on the long-term & hardly on the current economic cycle which may not always be wise.
  • The government is also focusing more on foreign investments. However, no country has survived without enough domestic investments and a bigger push in that direction is essential.
  • Although the government has been prudent in the Budget because we haven’t exceeded the Fiscal Deficit, but this very reason is also contributing to the slowdown.
  • Even the infrastructure expenditure has been reduced which is again not a wise step.  However, measures have been taken in order to extend the repayment tenure for infrastructure companies. This is done in order to incentivise these companies to complete their projects and ensure that people’s money isn’t invested/stuck in incomplete projects.
Mr. Debopam comments on the Budget:
    • The government is focusing too much on the long-term and hardly on what’s happening/going wrong currently. (Recommended a book called Firefighting by Henry Paulson et. al. to understand the nature & effects of financial crises & lessons from the same)
    • Corporates are heavily reliant on bank loans and that is because the debt market is next to non-existent in India. This has created a monopoly of the bank loan market which has made bank interest rates sticky.
    • Due to the IL&FS scandal, the MSME sector has also faced a huge blow. This is because MSMEs are heavily dependent on NBFCs as banks do not have the risk appetite to cater to MSMEs. This problem becomes grave in the Indian context because MSMEs have the largest share in the corporate sector.
    • Because of the slowdown in the economy, the real estate sector is also suffering because people’s wealth is stuck in unfinished real estate sector.
  • The growth potential of India & future prospects: Insights & numerical estimates given by the Panellist’s.

    Mr. Debopam: 8%+ growth rate in 10 years with 1-2 years of slippage

    Mr. Saugata: 8%+ growth rate in 3-4 years

    Mr. DK Joshi: 6.5-7% growth rate in 4-5 years

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