Budget 2020: Government Missed Opportunity To Expand Fiscal Deficit To Support Growth, Says Indira Rajaraman

The government’s move to limit its fiscal slippage to only 0.5 percent is a missed opportunity for Finance Minister Nirmala Sitharman to bolster economic growth, according to Indira Rajaraman.

“What we needed in this budget was this fiscal expansionary movement and disregard of the limits enshrined in the Fiscal Responsibility Act, simply because this is such a critical situation in terms of growth,” the former director of the Reserve Bank of India’s Central Board and member of the Thirteenth Finance Commission told BloombergQuint in an interview. This was a situation when no one would’ve blamed Sitharaman for letting go of the fiscal limits, she said.

Rajaraman believes the government should have corrected some wrongs that have crept into the system, such as deferred payments. A fiscal deficit is not meant to be met by deferring payments, she said. According to Rajaraman, the high disinvestment target of Rs 2.1 lakh crore is unrealistic and the reliance on non-tax revenues is rising.

While there were a few good things in the budget, the measly Rs 22,000 crore allotted for infrastructure is disappointing.

“If you’re planning an infrastructure pipeline of Rs 103 lakh crore, they should have given much more in this budget upfront. But once again this would not have been possible without relaxing the fiscal limit, which they were not willing to do beyond the small 0.5 percent of GDP,” she said.

The attempt to boost consumption by offering an optional personal income tax scheme will give the budget a “rosy tint” but do little to boost demand in the economy.

But one structural reform that Rajaraman said was a big positive was the government’s scheme to incentivise the replication of central laws on land leasing, contract farming and product marketing in the agricultural sector on a state level. This is an important reform of a major factor of production, she said. “While we are yet to see what the incentives will be, its success would be a boost to the agricultural sector.”

Another important decision was to allow small businesses to get factor financing against delayed payments. The proposal to change the law and allow factor payments rather than bill discounting will make banks more open to providing finance to these small businesses.

Watch | the full interview here...