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Budget: From Slowing Growth To Low Demand, Key Challenges For The Economy


From falling economic growth, joblessness, a credit crunch in the aftermath of defaults by IL&FS to weak consumer demand. These are some of the challenges facing the economy. While global factors such as trade wars and crude oil prices continue to loom large, domestic macroeconomic indicators highlight a range of issues that need to be addressed. Analysts, investors and economists expect the government to address these concerns in its upcoming full-year Budget, scheduled to be presented in Parliament on July 5. As Finance Minister Nirmala Sitharaman, India’s first full time woman finance minister, unveils her maiden Union Budget, all eyes will be on any steps to boost the economy and consumer demand.

Here are some of the key challenges before the government ahead of the preparation of Budget 2019:

1.    GDP growth

India’s GDP or gross domestic product grew 5.8 per cent in the quarter ended March 31, official data showed last month. The data also meant India lost its position as the fastest growing major economy to China. For the year ended March, India’s economic growth stood at a five-year low of 6.8 per cent.

2.    Unemployment

Unemployment in the country rose to a multi-year-high of 6.1 per cent in financial year 2017-18.

3.    Consumer demand

Economists say that any recovery in consumer demand will be a key factor to watch in the coming months.

The Reserve Bank of India in its June 6 policy statement noted weakness in growth impulses and private consumption especially in rural areas. “A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern,” the RBI stated.

Many major carmakers have revised down their sales projections citing weak consumer demand.

4.    Fiscal consolidation

In its February Budget, the government raised its fiscal deficit estimate by a notch to 3.4 per cent from 3.3 per cent for financial year 2019-20. The government has projected a fiscal deficit of 3.0 per cent each in financial years 2020-21 and 2021-22.

Fiscal deficit means a situation where a government’s expenditure exceeds revenue collections.

5.    Bad loans

Non-performing assets or bad loans remain an issue in the country’s banking sector. Twenty one state-run banks in the country – holding two-thirds of assets in the sector – account for the bulk of the record $150-billion (around Rs. 11 lakh crore) of soured loans.

6.    Liquidity scare

Capital markets regulator Sebi has ordered enhanced disclosure norms for credit rating agencies in an effort to increase transparency. In 2018, a string of defaults at Infrastructure Leasing and Financial Services Ltd (IL&FS) spooked the markets, and prompted the government to take control of the company to limit fears of a contagion.

The RBI has time and again taken steps to boost the liquidity. In its June 6 policy statement, it said liquidity turned into an average daily surplus of Rs 66,000 crore in early June, after remaining in deficit in April and most of May due to restrained government spending.

7.    Jet Airways revival

Private sector airline Jet Airways suspended its flight operations indefinitely in April. Its group of lenders is still in talks with investors, who may consider infusing funds to revive the airline. Lenders of the grounded airline have taken a controlling stake in the airline, and are currently in the process of selling a stake to recover their dues.

While many of the ailing carrier’s top officials – including the CEO and CFO – have quit, hundreds of pilots, engineers and technicians have joined rival aviation companies.

Source: NDTV Profit