‘For FM’s revival push to deliver, govt needs to tick off other boxes as well’

The government needs to follow through the measures announced on Friday with higher spending, implementation of budgeted schemes to support consumption, and reforms, such as divestment, to make sure the growth momentum continues and the finance ministry’s announcements have the desired effect, said economists.

Domestic demand has been hit and though the nature and extent of the impact is yet to be ascertained, a global slowdown, heightened trade tensions and uncertainties could also impact India. It is, therefore, necessary that the government follows through the measures with action and keeps thinking of new areas to boost growth, they said.

“Friday’s announcements by the finance minister are welcome, but they will have to be followed by other measures. Some things announced in the union budget like cash transfers to farmers can be implemented sooner rather than later as the festive season of October-December is crucial for spending. Also, on the revenue side, it is unclear whether the tax target will be met. Divestment is the only big-ticket revenue item which the government can use, so it should quickly get started on that too,” said Shubhada Rao, chief economist at Yes Bank.


The government has earmarked Rs 77,752 crore for the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), launched just before the general elections which aims to give Rs 6,000 annually in three equal installments to 12.6 crore small and marginal farmers. Economists said these schemes, which are already budgeted for, need to be implemented quickly to go with measures announced on Friday.

Among the measures announced on Friday, the government vowed to clear all pending GST refunds within 30 days and also set a 60-day deadline to clear new refunds. Finance minister Nirmala Sitharaman also announced that the Rs 70,000-crore budgeted for public sector bank capitalisation will be released upfront rather than at the end of the year which could boost lending by banks.

Also, housing finance companies have been given an additional Rs 10,000 crore as liquidity support from the National Housing Bank.

These together with other measures such as removal of surcharge on foreign portfolio investments and angel tax on start-ups and a special package for the auto sector are expected to fire up growth.

Sitharaman’s comments of two more likely packages in the next few days have raised expectations, but economists said the government's ultimate aim must be to revive investments that have been in a flux for the better part of the last decade.

“The measures announced may just be enough to create a floor for growth. To pop up growth, the government needs to push investments. Monetary policy cannot on its own rekindle demand. We need some fiscal measures to increase government spending but infrastructure and large-ticket projects can only be done by the government. Reducing rates by Rs 40 per lakh will not lead people to buy homes. It needs more,” said Indranil Pan, chief economist at IDFC First Bank .

India's GDP grew 5.8 per cent in the quarter ended March 2019, the slowest rate of growth for the country in five years. Earlier this month, the Reserve Bank of India (RBI) cut its fiscal 2020 growth projection to 6.9 per cent from 7 per cent, citing weak domestic economic activity and risks of a global slowdown, among others.

On Friday, global credit rating agency Moody’s cut India's growth forecast for calendar 2019 by 60 basis points to 6.2 per cent. Growth is likely to be lower by a similar quantum in calendar 2020 as well, Moody’s said. One basis point is 0.01 percentage point.

The growth slowdown is impacting half of the 16 large economies Moody's tracks in Asia and is likely to spread to three more economies in calendar 2020, Moody's said.

The global slowdown has made matters worse and increased the urgency for action, economists said. The measures announced by the government are much needed.

“Implementation will be key. If pending payment is released to MSMEs within 30 days it will have a good impact. Similar release of pending payments and tax refunds which are stuck can help economic activity. The farmer support announced by the government, for example, has not yet fully reached farmers. All these, if implemented well, will act as a booster,” said Anubhuti Sahay, chief India economist at Standard Chartered.

Economists are now awaiting new government announcements and will also keep a close eye on the effectiveness of the policy measures already announced.