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Budget 2020 Expectations: FM Sitharaman’s biggest challenge is to put economy back on growth track

Union Budget India 2020-21 Expectations for Economy: It will be tough task for the FM to create demand through enhanced government spending as the Centre is facing resource crunch.

Union Budget 2020 Expectations for Economy: With the Indian economy facing slowdown due to low demand that gets further aggrieved by lack of job creation due to low-keyed activities in real estate and manufacturing sector, leading to higher NPA and reluctance to take risks by the lenders in both capital and credit markets, the major challenge before Finance Minister Nirmala Sitharaman is to remove the barriers to put the economy back on a fast track of growth.

However, it will be tough task for the FM to create demand through enhanced government spending as the Centre is facing resource crunch due to lower than expected revenue collections on account of lower income and lower consumption, leading to lower tax collections.

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“Growth is on everybody’s mind right now and the budget should ideally stay tethered to the idea of giving a boost to the currently tepid economic growth in the country. From that perspective, there are four main issues that are currently impacting the Indian economy. These include lacklustre consumer demand and job creation environment, subdued activity in the real estate and infrastructure sector, waning risk appetite in the capital and credit markets and a resource crunch impeding further government spending,” said Sandeep Jethwani, Senior Managing Partner, IIFL Wealth Management.

With little opportunity to create demand pull through job creation in unorganised sectors due to resource crunch, the government need to take other steps to increase disposable income in the hands of the consumers to start the cycle of higher demand, higher production, higher job creation leading to even higher demand.

“The budget should holistically address each of these issues and announce measures that can give an impetus to all four areas. After announcing a host of supply side measures, the government can give a fillip to consumption demand by tweaking the personal income tax structure. This can either be done by way of rationalising tax slabs or by raising exemption limits. Concurrently, the government should ensure that the increase in income that tax rationalisation would bring is complemented by better employment opportunities and easier availability of credit,” said Jethwani.

The government should also take initiative to create jobs, either by providing incentives for higher job creation or by removing the hurdles that are creating barriers on the way of employing more people.

“The Budget should provide incentives to propagate employment intensive industries like tourism to boost job creation. The government may make reference to relaxation in NPA recognition norms (followed up by details from RBI) to resolve stalled real estate projects due to funding crunch. The sector could attract more funds with this measure (assuming some reversal of risk aversion). Concerns related to fiscal tightness need to be addressed and a clear roadmap for strategic and asset monetisation through sales or leasing needs to be shared,” said Jethwani.

Source: Financial Express