Your mission, should you choose to accept it, is to save the country from further economic destruction. This perhaps may have been Prime Minister Narendra Modi's brief to Nirmala Sitharaman when she was offered the finance ministry portfolio in May.
The steady decline in all leading economic indicators tied the economy up in knots, saddling Sitharaman with the task of turning into a desi Ethan Hunt, the Mission Impossible superspy who rescues the world from dastardly evils each and every time, no matter what. Much like Hunt, Sitharaman too found herself in an unwinnable situation, but must triumph.
Only, unlike Hunt who knows precisely the problem and has a plan to fix it, the finance ministry, critics pounce, failed to diagnose the problem early on. Not understanding the cause implies that you will miss what's coming next and now, the government is flummoxed about how to restore economic health. We have too little fiscal ammunition and only a much-belated monetary policy to fight the slowdown, each doing very little by way of help.
Worse, analysts say the slump hasn't bottomed out yet, meaning we've to keep up with dismal economic data for some more time. It also means recovery will be delayed at least until FY21.
"We now believe GDP growth did not bottom in the April-June period," said Sonal Varma, chief economist for India and Asia, Nomura, adding, "High-frequency indicators have plunged and domestic credit conditions remain tight amid weak global demand."
The breathlessly crashing auto sales, consumption demand and private investment collectively caused emotion-writhing twists with GDP growth plunging unbelievably to 5 per cent in Q1, FY20.
As if this wasn't enough and notwithstanding the festive season, fist-clenching and heart-pounding moments continued with economists projecting growth to resign itself to 4.2-4.5 per cent in Q2, eventually rounding off at 5 per cent for full fiscal FY20. For now, the much-hyped 7-8 per cent growth dream seems to be dying.
The vertigo-inducing effects are unstoppable. During the first six months of FY20, tax collections grew at decadal low of 2.4 per cent, with estimates suggesting a shortfall of anywhere between Rs 2 and Rs 3 lakh crore. For context, just last year, despite all being relatively well, tax revenue shortfall was nearly Rs 2 lakh crore.
This isn't to say the government was oblivious to the deteriorating conditions and ready to let time work its wonders. As Hunt famously said, hope isn't a strategy. Sitharaman did unleash some high-octane stunt spectaculars, in other words, fiscal measures including the corporate tax cuts (whose impact comes with a lag) foregoing a princely sum of over Rs 1.4 lakh crore in revenues, besides front loading Rs 70,000 crore into ailing state-run banks, and offering a stimulus package for real estate and crisis-hit housing finance companies and NBFCs.
Just this week, she also announced a massive privatisation drive putting the nation's precious assets like BPCL and Shipping Corporation of India on the block. The move has enough showbiz sparkle to keep even the most hardened critics interested, but sadly, it lacks, in Hunt's parlance, the Rabbit's Foot that brings good-luck charm. There are fewer buyers and even if you find one, the promised monies are unlikely to come in time to fix FY20 finances. In other words, though the announcement did thrill optimists, it didn't quite make for a heart-racing MI entry.
In the absence of the much-needed monies, given that tax collections are already bleak, government spending may face a meat cleaver. According to Motilal Oswal's recent study of state finances, though government spending during Q2 grew at its fastest pace since FY13, such a strong spending spree is unlikely to continue for the rest of the fiscal as the combined fiscal deficit (centre and states) has already crossed 73 per cent of the budgeted estimate for FY20.
While we wait with anticipation until 2020 or beyond for MI 7 to hit the screens, back home, a fresh bomb-under-the-table moment, aka official national income statistics for September quarter is due for release next Friday.
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