BUDGET 2020 EXPECTATION
With only few days left for the Finance Minister, Nirmala Sitharaman, who has the huge responsibility to revive the Indian Economy, to present the NDA's seventh budget. The Indian Economy has grown at 4.5% in the second quarter, inflation stands at 7.35% which is five and a half year high and along with that unemployment rate is 6.1%, highest in 45 years. Almost every section of the economy is eagerly waiting for the budget that will be presented on 1st February, 2020 to see what the Government has planned to combat the slowing growth rate.
The main issue concerning the economy is low demand especially in rural segment. Consumption forms almost the 60% of Aggregate Demand and it is low and as a result the output is also getting low. Private consumption has also grown very slowly in the first half of the year, further decreasing the aggregate demand.
The main challenge for the government now is to increase the Consumption and Investment, so that the overall demand in the economy rises. The government cut the corporate tax few months back hoping for a rise in corporate investment, but currently this has hardly shown any results because these changes require time. Similarly Interest rate cut by the RBI has also not shown any result and this is why RBI opted not to cut the interest rate any further after cutting it for five successive time. Along with corporate tax and interest rate cut, the government has also announced Rs. 25000 crore fund to the real estate sector but it needs to ensure that the developer who actually require these funds can avail it. This process also need to be improved to ensure faster flow of funds.
The best way to stimulate demand is to increase consumption by putting money in the hands of the consumers. This can be done in two ways - a cut in personal income taxes and enhanced spending on the rural programmes. This will increase liquidity and thereby increase consumption from the household sector.
Demand is also influenced by behavioral economics and now the consumer confidence is lowest since 2014, hurting the economy. With the nation wide protest going on all over the country against CAA and NRC, the consumer sentiment is falling and that has resulted in lower spending by the people. To counter this situation, the government had to come up with a budget that put the economy back on track and prove that the protest has not diverted the government's focus from the slowing economy. Also a good budget will satisfy many sections of the society. The government should prepare a budget that will stimulate demand with special focus on the real estate, banking and finance and rural programmes to revive consumer sentiment and thereby increased consumption.
In recent development, IMF has cut the growth forecast for all the emerging economy. The sharpest decline has been in Indian growth rate, which is estimated to grow at 4.8% in 2019-20.
The main issue concerning the economy is low demand especially in rural segment. Consumption forms almost the 60% of Aggregate Demand and it is low and as a result the output is also getting low. Private consumption has also grown very slowly in the first half of the year, further decreasing the aggregate demand.
The main challenge for the government now is to increase the Consumption and Investment, so that the overall demand in the economy rises. The government cut the corporate tax few months back hoping for a rise in corporate investment, but currently this has hardly shown any results because these changes require time. Similarly Interest rate cut by the RBI has also not shown any result and this is why RBI opted not to cut the interest rate any further after cutting it for five successive time. Along with corporate tax and interest rate cut, the government has also announced Rs. 25000 crore fund to the real estate sector but it needs to ensure that the developer who actually require these funds can avail it. This process also need to be improved to ensure faster flow of funds.
The best way to stimulate demand is to increase consumption by putting money in the hands of the consumers. This can be done in two ways - a cut in personal income taxes and enhanced spending on the rural programmes. This will increase liquidity and thereby increase consumption from the household sector.
Demand is also influenced by behavioral economics and now the consumer confidence is lowest since 2014, hurting the economy. With the nation wide protest going on all over the country against CAA and NRC, the consumer sentiment is falling and that has resulted in lower spending by the people. To counter this situation, the government had to come up with a budget that put the economy back on track and prove that the protest has not diverted the government's focus from the slowing economy. Also a good budget will satisfy many sections of the society. The government should prepare a budget that will stimulate demand with special focus on the real estate, banking and finance and rural programmes to revive consumer sentiment and thereby increased consumption.
In recent development, IMF has cut the growth forecast for all the emerging economy. The sharpest decline has been in Indian growth rate, which is estimated to grow at 4.8% in 2019-20.
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