New Delhi: India's growth rate is expected to be marginally higher at 5.5% in 2020-21 against the estimated 5% for the current fiscal on the back of strong policy push coupled with revival in demand, a report said.
India Ratings and Research (Ind-Ra) said said the slowdown is a combination of several factors including an abrupt and significant fall in lending by non-banking financial companies close on the heels of a slowdown in bank lending and reduced income growth of households coupled with a fall in savings and higher leverage.
Although some improvement in FY2020-21 is expected, these risks are going to persist, India Ratings and Research principal economist Sunil Sinha said.
As a result, the Indian economy is stuck in a phase of low consumption as well as low investment demand, it said.
"A strong policy push coupled with some heavy lifting (even if this requires using the escape clause as suggested by the FRBM Review Committee headed by N K Singh) by the government is required to revive the domestic demand cycle and catapult the economy back into a high growth phase," it said.
The government has announced a slew of measures recently to prop-up the economy, but Ind-Ra believes they will come to aid only in the medium term.
The shortfall in the tax plus non-tax revenue to result in the fiscal deficit slipping to 3.6% of GDP (budgeted 3.3%) in FY2020, even after accounting for the surplus transferred by the RBI, it said. "A continuance of low GDP growth even in FY'21 means subdued tax revenue and limited room for stepping-up expenditure.
Ind-Ra believes the government will have to construct the FY21 budget in a way that expenditure is rationalised and prioritised and all avenues of revenue generation are tapped," it said.
While rationalising, the focus of expenditure has to be on creating direct employment and putting more money in the pockets of the people at the bottom of the pyramid, it said, adding since their marginal propensity to consume is close to one, they are likely to spend what they receive.
"This will support the consumption demand. Therefore, budgetary allocation to heads such as rural infrastructure, road construction, affordable housing and MNREGA must be prioritised and allocation for non-merit subsidy/expenditure less critical for growth be rationalised," it said.
