Long-term budgetary measures, unlikely to meet growth targets in fiscal year 21: Crisil

MUMBAI: The economists of the national rating agency doubt that the budget will reach its objectives in increase , given the rural momentum and, therefore, the realization of consumption and income, saying that the planned budgetary measures are not expected to provide momentum in the short term.

Noting that the economy Facing its worst slowdown in more than a decade, a Crisil report has said that this was because consumption and investment have stopped shooting for too long.

If at all the GDP were to clip at the projected 5.7-6.6 percent in FY21, it will be thanks plus to the base effect-FY20 increase at an 11-year low of 5 percent, down from 6.1 percent in FY19 on the back of a 48 year low nominal increase of at 7.5 percent in FY20.

"The given its tied hands, the government has aimed at some measured moves in the budget to bolster increase . Most of these, however, are not expected to provide a short-term boost," says the Crisil report.

Live plus "In the absence of increase kickers, increase pick-up in fiscal 2021 is expected to be largely led by the base effect and supported by somewhat better farm income (led by a good ) and the delayed impact of monetary easing. Critical to this forecast is the assumption of a normal monsoon in the next season and benign global crude oil prices," it warns.

"If that sounds bad, the financial sector stress has been looping into real sector weakness, dragging down increase some plus . The external front has also landed the domestic economy a few blows. What makes this "shrinking" feeling stranger and last longer is the long-overdue financial sector clean-up, at a time when the economy is suffering from many other ailments.

Without a doubt, monetary policy has done its part, but with moderate and slow success. The Reserve reduced the repurchase rate cumulatively by 135 basis points until the 2019 calendar, but interest rates have been delayed with only 50 bp decrease, the report said.

The additional fiscal space of 50 bps plus over FY20 budget estimate projection for FY21 (fiscal deficit projected at 3.5 percent of GDP next fiscal against the glide path of 3 percent) is to be funded by aggressive disinvestment, asset monetisation and telecom revenues, optimistic tax-buoyancy assumptions and some tightening in overall expenditure. But the space so created is being used to fund capex and rural sector spending that support consumption, it says.

It should be noted that this is the fourth consecutive budget in which the government has lost the original budget estimates on deficit figures.

Despite strict fiscal conditions, the budget leaves room for higher capital expenditures. It is estimated that total capital expenditure will increase by 18% in fiscal year 2021. A large part of this is infrastructure spending. But, ironically, it is estimated that overall infrastructure spending will decrease by 7% in fiscal year 2011 due to the reduced dependence on extrabudgetary spending through the central units of the public sector despite increased budget support.

Similar is the expected slowdown in revenue spending in fiscal year 2021, led by a lower burden of subsidies on food, fuels and fertilizers.