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Budget 2020: FM says green shoots of recovery visible, points at worse macro-economic fundamentals under UPA

FE Bureau
Budget 2020, India Budget, FM Nirmala Sitharaman, goods and services tax, GST

Finance Minister Nirmala Sitharaman on Tuesday asserted that the economy isn't in trouble and pointed to seven indicators - including the recent rise in the goods and services tax (GST) collections, foreign direct investment (FDI), forex reserves and industrial output-to suggest that "green shoots" of recovery are visible. Replying to a debate on the Budget for 2020-21 in the Lok Sabha, Sitharaman said the government is focussing on all the four key engines - private investments, exports, and private as well as public consumption - to pump-prime the economy, and not just official spending.

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Economic growth is estimated to hit a seven-year low of 5.7% (upon a revised base) in FY20. Stock markets are upbeat, with the Sensex having gained 5.6% since March 2019. The monthly GST mop-up has exceeded Rs 1 lakh crore six times in the current fiscal with a peak of Rs 1.1 lakh crore in January. This indicates heightened economic activity, the minister said, while listing various initiatives taken by the government to improve economic growth and public welfare.

FDI inflows in the first half of this fiscal jumped 15% year-on-year to $26.1 billion, according to DPIIT data.  Similarly, net foreign portfolio investment inflows jumped to $12.6 billion in the April-November period from $ 8.7 billion a year before. The FM also exuded confidence that the announcement of the proposed investments of Rs 103 lakh crore over a six-year period through FY25 under the National Infrastructure Pipeline would help draw more FDI in various projects.

Foreign exchange reserves stood at $466.69 billion as of January 24, compared with $413 billion at the end of the last fiscal. "It reflects increasing confidence in the Indian economy," she said.

Industrial growth, too, is witnessing a recovery, with the index of industrial production having turned positive with a 1.8% rise in November after three straight months of contraction. Purchasing Managers’ Index (PMI) for manufacturing scaled a near eight-year peak in January and that of services jumped to a seven-year high. Sitharaman also pointed at worse macro-economic fundamentals during the UPA era to take a potshot at former finance minister and senior Congress leader P Chidambaram for his recent remark that the economy is "perilously close to a collapse and is being attended by incompetent doctors". During the Modi government's tenure (since FY15), fiscal deficit has ranged between 3.3% and 4.1% of GDP, against 4.5-6.6% between FY09 and FY14. "This happened even when the economy was managed by the competent doctor,'' she said sarcastically.

Responding to criticism that economic recovery is being led by just government spending, the minister said various measures–such as the sharp cut in the corporate tax rate, the removal of dividend distribution tax, reduction in GST rates for electric vehicles, amendments to the Insolvency & Bankruptcy Code (IBC) for faster disposal of cases and the amalgamation of 10 banks into four to create size and scale–are all aimed at enabling all the four growth engines, especially private investments, to fire. To boost rural consumption, the government has increased the
minimum support prices of key crops, she added.