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Budget 2020 can end India Inc's wait and watch mode to spur investment in the economy

The government has been intervening, at regular intervals, to pump prime the economy. Finance minister Nirmala Sitharaman announced new measures to boost economy and rolled back those which soured investor sentiment. The economy, which hit a trough in the second quarter, is expected to see some revival in the second half of this fiscal.

, ET Online|
Updated: Jan 08, 2020, 03.00 PM IST
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Economic growth
The upcoming Budget could well be the moment to put India on stronger growth footing.
The first advance estimates released by the government on Tuesday confirm that the GDP growth for FY20 will hit a decadal low of 5 per cent. A disaggregated look at the GDP print is anything but comforting with key indicators nosediving. Manufacturing growth is reported at 2 per cent while investment rate is reported to have crashed to just one per cent for the fiscal.

The government has been intervening, at regular intervals, to pump prime the economy. Finance minister Nirmala Sitharaman announced new measures to boost economy and rolled back those which soured investor sentiment. The economy, which hit a trough in the second quarter, is expected to see some revival in the second half of this fiscal.

The RBI has kept easing the interest rates to aid economic growth. After consecutively cutting interest rates by 135 basis points, it paused in December to allow previous rate cuts to optimise and show effect and watch the trajectory of inflation which has been steadily creeping up.

But, experts have suggested that the RBI's intervention can't be the sole driver of economic growth. The government needs to intervene by ramping up capital expenditure. Recently, the government unveiled a National Infrastructure Pipeline announcing projects worth Rs 102 lakh crores. This could just be the booster shot needed to spur investment in the economy. The first advance estimates pegged investment growth at just 1 per cent in the current fiscal. That's down from 10 per cent in the previous year.

A recent report suggested that the government could curb expenditure as worries over meeting the fiscal deficit target mount in the light of subdued tax collection. Revenue mobilisation could pose a challenge in its pursuit of meeting the ambitious infrastructure goal it has set for itself.

Last year's Economic Survey spoke of a virtuous cycle kicking in with revival in private investment. The government cut the corporate tax rate to allow that virtuous cycle to take effect at the earliest. But, according to economists, revival in private investments will take time as corporates struggle to clean up their balance sheets.

The surest way to let that virtuous cycle to kick in is to ramp up government expenditure ignoring the fiscal deficit targets for the time being. Madan Sabnavis of CARE Ratings feels that " government should skip the fiscal path of prudence and make a more realistic budget that focuses single-mindedly on growth".

The upcoming Budget could well be the moment to put India on a stronger growth footing. Increased capital expenditure by the government to fix key infrastructure bottlenecks can help in crowding in private investments at a time when India Inc is in a wait and watch mode. The finance minister can change that stance in the upcoming Budget.

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