July 08, 2019

Union Budget 2019: An attempt to address the economy’s stress points

In this article published by Ideas for India, Niranjan Rajadhyaksha looks at how the budget seeks to address some of the stress points in the Indian economy with a lot riding on the sanctity of the budget numbers.


"In this article, Niranjan Rajadhyaksha contends that in the first budget of the second Narendra Modi administration, Finance Minister Nirmala Sitharaman has made an honest attempt to address some of the stress points in the Indian economy – but a lot depends on the sanctity of her budget numbers.


The first budget of the second Narendra Modi administration was presented by Finance Minister Nirmala Sitharaman on 5 July against the backdrop of two dominant macroeconomic challenges. The first challenge was to respond to the sharp cyclical slowdown that has brought economic growth to its lowest level in five years. The second challenge was to rebalance the Indian economy by spurring investment rather than consumption growth. "


He focuses on two themes that can be teased out of the macroeconomic policy decisions


"First, the fiscal deficit target has been kept at a conservative level in the hope that this gives enough assurance for the Monetary Policy Committee (MPC) to cut interest rates once again in August. Meanwhile, the RBI has been easing liquidity in the domestic money market by increasing the size of its balance sheet, so that monetary policy transmission improves.


Second, the fall in the financial savings of households as a proportion of gross domestic product (GDP) is apparently being countered with a greater dependence on foreign savings; the two foreign exchange swaps done by the RBI earlier this year as well as the risky plan to float a sovereign bond in the international market should be seen in this context. "


He ends on why all these policy decisions depend on the sanctity of the budget numbers. Read the complete article here

Topic : State Capacity / In : OP-EDS
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