Containing deficit will be first big test for next FM

If oil is on the boil, CAD will become troublesome yet again. 

Published: 23rd May 2019 05:26 AM  |   Last Updated: 23rd May 2019 10:05 AM   |  A+A-

Express News Service

HYDERABAD: The incoming government will begin its innings with an assemblage of economic priorities. If high inflation, slow growth, worrisome fiscal deficit and Current Account Deficit marked the start of NDA’s first-term in May 2014, barring inflation, the ills ailing the economy hasn’t changed much. 
We did see key reforms like the GST, though it’s yet to crank out revenue. Despite buoyancy in income tax revenue and non-tax revenue (thanks to historic proceeds from disinvestments), fiscal deficit targets were rolled over. With tax collections missing FY19 target, will the next finance minister open the spending tap to spur growth? 

But that’s an option one may not have as it could further strain finances. The NDA government simply lacked the means (and will) to tax, so it instead borrowed. According to J P Morgan, combined borrowings of Central, state and public sector entities account for 8.6 per cent of GDP. Containing deficit, either by tightening the nation’s belt or by imposing new taxes and tariffs may well be the first big test of the next FM as economists advocate thrift and discourage debt.
The world’s fastest growing economy can grow above 8 per cent, but strangely is surviving in the vicinity. The incoming government thus needs to get GDP growth to speed up, spur consumption, revive private investment and create jobs. 

Consumption, which accounts for over 60 per cent of GDP, remained softer over the past two years. So was industrial activity, while exports were dismal. “The BJP’s manifesto is unhelpful in judging its true priorities, but we expect job creation to be the primary economic focus of the NDA early in its new term having ostensibly dodged that bullet in 2019,” noted Jefferies India. 
About 1 million people enter the workforce every month and job creation is the need of the hour. Facing flak, the NDA government withheld NSSO’s latest jobs data report, a leaked portion of which revealed that unemployment rate stood at a 45-year high of 6.1 per cent.

While the survey’s technical methodology is being contested, it’s clear that structural reforms are needed to support growth and job creation for next decade. Fixed investments are stuck at about 30 per cent of GDP in last four years and unless the investment cycle re-starts, job creation will stay a challenge.
Bank credit is improving, but is insipid, while the crisis at NBFCs, which account for a third of all new loans, is likely to get worse if desirable measures aren’t rolled out soon. 

Trade deficit remains on the edge as exports growth leaves much to be desired, while imports continue to outgrow exports. Prime Minister Narendra Modi’s ‘good luck’ lowered fuel prices in FY16 allowing the Centre to live off ‘an oil bonanza’, but that lucky charm is on the turn, with Brent crude trading over $70 from a low of $27 per barrel in 2016. If oil is on the boil, CAD will become troublesome yet again. 

Stay up to date on all the latest Business news with The New Indian Express App. Download now
(Get the news that matters from New Indian Express on WhatsApp. Click this link and hit 'Click to Subscribe'. Follow the instructions after that.)

Comments

Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the newindianexpress.com editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on newindianexpress.com are those of the comment writers alone. They do not represent the views or opinions of newindianexpress.com or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. newindianexpress.com reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp