CAN SITHARAMAN BOOST THE INDIAN ECONOMY OUT OF TROUBLES?




The first budget of Modi 2.0 government is scheduled to be presented on July 5 by finance minister Nirmala Sitharaman who is also the second woman to assume the office of finance minister after late former prime minister Indira Gandhi in 1970. However, Sitharaman has taken over at a time when Asia’s third largest economy is stuttering. A dozen of challenges awaits the new finance minister. Fiscal deficit: One of the major tasks before the new union finance minister, Nirmala Sitharaman, is whether she will be able to maintain the fiscal deficit target in her new role besides measures for reviving the economic growth in the country when she presents her maiden Union Budget 2019 on July 5. She may project a fiscal deficit target of 3.4 pc of the gross domestic product (GDP) for 2019-20, sticking to the figures in the interim Budget of February 1. 

The fiscal accounts are already under severe pressure now because of low tax collections. The previous Narendra Modi government had managed to meet the revised fiscal deficit target of 3.4 pc of the GDP in fiscal 2019 after it cut last minute expenditure and rolled over fuel subsidies to make up for the shortfall in tax collection. (The fiscal deficit is the difference between the government’s total revenue and total expenditure. This is an important parameter to gauge the government’s overall performance and the sustainability of growth in the future.) The interim Budget presented in February this year had revised upward the fiscal deficit target to 3.4 pc from 3.3 pc of the GDP estimated earlier for 2018-19. Economic growth: Her second big challenge is to arrest the slowdown.

 India is witnessing a slowdown in growth over the past five few quarters. In the third quarter of 2018-19, India’s GDP growth slipped to 6.6 pc after growing to 8.2 pc in the first quarter and 7.2 pc in the second quarter. The GDP growth for the fourth quarter ended March 2019 which indicated that it has slowed down to 5.8 pc. Spur demand: Another test is on how to boost consumption. Consumption of housing, autos, FMCs has slowed down for more than a year now.  It is to be seen how she addresses this-whether putting money in the hands of buyer by lowering income tax or tax concession for producers?

 Boost investment: Indian economic growth has been short-circuited due to a sharp slowdown in investment. Fiscal 2018-19 ended with new investment proposals adding up to a dismal INR 9500 billion. This is the lowest investment proposal recorded in a year since 2004-05, that is, in 14 years. Unemployment: Joblessness remains a major concern in the country of 1.3 billion people. Various estimates suggest that half the youth in India are aged 25, of which, 19 million are expected to be jobless by the end of 2019, according to a 2018 report by the International Labour Organisation (ILO).