It should have come as no surprise that the growth rate in 2019-20 is unlikely to exceed 5 per cent. The forecast by the National Statistical Office on Tuesday confirmed the growth projections made earlier by various agencies, including the RBI. This will be the lowest rate of growth in eleven years. Last time the economy recorded an even lower growth was in 2008-09 when in the wake of the global financial crisis it had dropped to an abysmal 3.1 per cent. Manufacturing is a major culprit, having dropped to a mere 2 per cent in the current financial as against 6.9 per cent in the previous year. Even the services sector which accounts for nearly 60 per cent of the economy is affected by the slowdown, slated to grow by 6.9 per cent this year as against 7.5 per cent the previous year. The nominal rate of growth, that is growth including the rate of inflation, is expected to be 7.5 per cent this year while it was 12 per cent in the previous financial. This would adversely impact the fiscal estimates of the budget, though the Finance Minister still insists that deficit would be maintained within the budgeted limits. The government finances are without doubt in a precarious condition. Against a provision for borrowing a total Rs 4.48 trillion in the entire year, by September it had already borrowed Rs 300 billion more over and above the full-year target. How much more it will borrow and how much more it will cloak the actual deficit by resorting to extra-budgetary book-keeping cannot be estimated but given the slowdown and a shortfall in revenue growth it is bound to be substantial. There are no signs of a revival in sight, with consumer goods industries too in the grip of slowdown. Should the volatile situation in the Middle East turn adverse, there could be a sharp spurt in crude oil prices, making it further hard to maintain fiscal discipline. Private investment continues to be stagnant, unable to shake off the burdens of the NPA crisis. The profligacy of bank credit during the 2008-2013 period has so damaged the banking sector that despite repeated re-financing of banks through infusion of funds by the central bank the sector is yet to emerge fully from the debilitating crisis. In this backdrop, the coming budget may hold the key to snap the downward spiral of slowdown from 8.1 per cent in the first quarter of 2018-19 to 4.5 per cent in the third quarter of 2019-20. But given the stringent financial condition, the Finance Minister’s options are limited. Middle class taxpayers are expecting some relief, especially after the corporate tax was slashed considerably. It is notable that the disinvestment target of Rs 1.05 lakhs remains unfulfilled. Economists fear that the economy might be headed into recession unless the Government is able to stem the crisis. Prime Minister has to signal bold steps such as land and labour reforms and direct transfer of fertiliser and power subsidies to the actual tillers of land to change the mood of economic doom and gloom. If he doesn’t do in the coming budget, the economy will stagnate in low growth.
